The oil and gas market saw some positive news recently. After nearly a year of declining rig counts, the past three weeks also saw an increase of 20 U.S. onshore rigs. Additionally, prices crept up over $50, up by more than 80% from the decade low they hit earlier this year.  The rise has been attributed to production outages in Nigeria and Canada as well as falling output in the U.S. Although these price increases are positive, the rally could entice producers to ramp up production, again swamping markets.

As it stands now, the remaining producers have significantly increased productivity, resulting in a production decline much slower than the rig count decline. The U.S. oil rig count is down nearly 50%, while production is off just 9% over the same period. It’s typical to see rig count lag behind prices, and the spring price rally could spur rig count increases for the next few months.

 

As prices have settled in around the $45-$50 mark over the last few months, consensus has tightened around forecasts, but a few outliers remain. Among the analysts’ forecasts (Figure A), Raymond James leads the bullish predictions with a $75 target by Q1 2017, whereas Goldman Sachs, UBS and Credit Suisse are more bearish with a $45-$48 target.

We further discuss the current oil and gas market and forecasts in our June Oil & Gas Newsletter:

 

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