With GLJ’s recently updated price forecast, we see current trends pointing towards a much tighter energy supply scenario resulting from rebounding demand. As economies shift from a focus on vaccination rates and controlling the pandemic back towards re-opening and boosting productivity, the demand for energy has quickly returned to near pre-pandemic levels.
Supply lagging demand
Recent under-investment and lower than average seasonal storage levels throughout North America and Europe have resulted in lower overall energy availability. Energy producers have been holding back on substantial CAPEX increases in favour of paying down debt and targeting consistent production levels. In addition to this, global oil supply is not anticipated to increase quickly as OPEC has recently reiterated its commitment to gradual output increases. These circumstances continue to inflate prices around the world.
Inflated energy prices are anticipated to persist in the near to medium term until production levels and adequate transportation can catch up to the pent-up demand created by the pandemic. Though this may be welcome news to oil and gas producers, the effects of sustained increased energy prices may create further inflationary pressures globally.
Energy transition policy
In addition to the current tight market conditions – energy transition trends (including the upcoming United Nations Climate Change Conference) may push climate related initiatives further into the forefront. This has the potential to impact future oil and gas production from the developed world as investment is redirected toward alternative energy sources. This trend may have the unintended consequence of further inflating energy prices as we shift our consumption trends. Producing nations like Canada must also be careful in achieving a practical energy transition to avoid simply “offshoring” all future energy growth to other countries to reach unrealistic targets (many competing producer nations do not have as strong checks and balances on ESG factors as Canada). As with any transition, there are undoubtedly going to be associated growing pains, and the next decade may see these pains crop up as inflated energy prices and overall product prices for consumers before new energy sources can compensate for global demand.
GLJ’s October Pricing
GLJ has released our latest evaluator commodity price forecast effective October 1,2021 reflecting the current upward market sentiment seen throughout energy markets. Our oil forecast has WTI set to increase to $64.00 USD/bbl (real) in the medium-long term while Edmonton light crude prices have been increased to a real price of $74.50 CAD/bbl. GLJ’s natural gas forecast has been adjusted to reflect current market trends in the short term, while stabilizing in the longer term at $3.00 USD/MMBtu and $2.85 CAD/MMBtu in real dollars for Henry Hub and AECO respectively.