Oil prices could dip to as low as $31 a barrel next year, but a big drop in production will set the stage for a recovery late in 2016, predicted Tom Petrie, chairman of Petrie Partners in Denver.
“By this time next year, we will be on the road to recovery,” Petrie told oil industry executives and investors gathered Wednesday for NAPE Denver at the Colorado Convention Center.
A Goldman Sachs forecast in September warned that a global supply glut could push but Petrie sought to dispel the increasingly popular “lower for longer” view on oil.
He did so on a day when domestic oil prices dropped 35 cents to $37.16 a barrel, the lowest point since February 2009.
“When you have a broad consensus, be ready to go the other way,” Petrie urged the gathering. “The resilience of our industry is something I have a lot of faith in.”
Petrie said bankruptcies, mergers and consolidation will accelerate in the months ahead and 2016 will be “another year of living dangerously.”
But low prices are also deterring investments that are needed to stave off rapid depletion rates in the world’s largest fields, setting the stage for a bottom.
Petrie’s scenario assumes Saudi Arabia will relent within a year or two at most in its effort to stop emerging competitors, in particular shale drillers in the U.S.
Saudi Arabia can produce oil for as little as $7 a barrel, but its economy requires an oil price closer to $89 a barrel to stay in the black, Petrie said.
The country is tapping deep foreign reserves and working on a first-of-its-kind debt offering to help fund its fiscal deficits. But its endurance may last another year or two — not five.
What happens to oil and natural gas prices is more than an academic exercise in Colorado. Weld County operators are on track to produce 100 million barrels this year, nearly four times what they produced in 2011.
If it were its own country, Weld County would rank up there with minor producers like Sudan and South Sudan, Turkmenistan and Congo.
The petroleum industry contributes $31.7 billion to the state economy and accounts for 102,000 jobs, said Dan Haley, president and CEO of the Colorado Oil and Gas Association.
About 38,650 of those jobs are direct and they pay $102,000 on average, double the state median, Haley said. About 20 percent of downtown office space is leased by oil and gas firms.
Gov. John Hickenlooper, who had to abandon a career as a petroleum geologist because of a severe downturn, urged the NAPE crowd to hold on tight to their best staff and be opportunistic.
“This is the time to be buying leases and production if you have the capacity,” Hickenlooper said.
NAPE conferences are about making deals, and after Petrie spoke, the living dangerously continued.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or @aldosvaldi
