American Oil and Gas Reporter - July 2015 - 157

ConventionCoverage: Oklahoma Independent Petroleum Association

Oil Analyst Sees Optimism
For U.S., Global Prices
By Dan Holder

LAS COLINAS, TX.-Global oil demand should jump at least 1.0 million
barrels a day in the near future, analysts
from Simmons & Company International
predict, and U.S. producers are the obvious
supply source to meet this demand.
Jeff Dietert, managing partner and
head of research at Simmons, said his
company expected 2015 demand would
grow at its highest rate since 2010, when
the world was coming out of the 2008-09
recession. He was one of two speakers in
a finance panel, moderated by Bruce Day
of Crowe & Dunlevy, which closed the
first general session at the Oklahoma Independent Petroleum Association's 60th
annual meeting. The event was held June
5-9 at the Four Seasons Resort in Las
Colinas.
Low commodity prices are encouraging
demand, he said. Dietert pointed to gasoline
sales as one growth market. U.S. gasoline
sales represent 10 percent of total global
demand growth, and he said Americans
increasingly were hitting the road. Vehicles
miles traveled increased by the strongest
percentage in 15 years, and SUV and
truck sales also are climbing.
Laying out the bullish factors supporting a case for longer-term price relief,
Dietert pointed to large international production projects-in deep water, Arctic
and Canadian oil sands-that have pushed
back their construction schedules. At the
start of 2015, Dietert said, 1.8 MMbbl/d
of major projects were expected to be
delayed or canceled; only half a year
later, that number was 3.5 MMbbl/d.
"There is a hole in the supply pipeline,
starting after 2017, and pushing out to
2020," Dietert said. "Once we get to
2020, Simmons believes we will be undersupplied and will see much stronger
oil prices."
The United States' oil demand peaked
in 2005 and has struggled to post increases
in the decade since, he said. 2015 may
be the turning point, Dietert offered,
adding U.S. demand forecasts call for an
additional 300,000 bbl/d. Europe, which
has not recorded demand gains for nine

Participating in a finance panel at the
Oklahoma Independent
Petroleum Association's 60th annual
meeting, are, from left,
Jeff Dietert, managing
partner and head of research at Simmons &
Company International;
panel moderator Bruce
Day of Crowe & Dunlevy; and Simmons' oil
service research director, John Daniel.

years, is seeing positive economic news
and more need for oil. While China's
gross domestic product growth has fallen
from 10 percent to around 7 percent, he
said other Asian markets, notably India,
were experiencing robust demand growth.
Total non-Organization for Economic
Cooperation and Development demand
is expected to exceed 1.0 MMbbl/d consistently, he said.
"U.S. production has been resilient.
We are seeing initial production rates
and estimated ultimate recoveries rise as
completion techniques improve," Dietert
said in describing how operators will
meet the demand increase. "We are seeing
more rapid spud-to-sales and spud-to-rig
release times, and these numbers are
being adjusted higher."
Increasing oil prices will drive those
changes, he said. Simmons is projecting
$57 a barrel for 2015, $65 a barrel the
following year and $70 a barrel in 2017.
Market conditions will spur companies
to add 340 oil-directed rigs in the U.S.
fleet during the next three years. He predicted 104 rigs would be added in the
second half of this year, followed by 182
in 2016 and 52 in 2017.
The firm's forecast for U.S. production
remains equally optimistic, Dietert reported, climbing from 2014's 9.2 MMbbl/d
to 10.0 MMbbl/d at the end of 2016 and
10.7 MMbbl/d to close 2017.

Bad Stats
Despite the best efforts of the Inter-

national Energy Agency and the U.S.
Energy Information Administration, Dietert assessed, the statistics used to model
global supply and demand are not very
good. He pointed to an unaccounted for
1.5 MMbbl/d, which he said statistics
could reconcile only with a category referred to as miscellaneous to balance.
"It means the agencies don't know
where those barrels went. They are likely
to be from stronger demand, inventory
builds outside the OECD, or potentially
overstated supply. I think the first two
are more likely," he posed.
Looking the bearish factors, Dietert
said the Organization of Petroleum Exporting Countries had increased production 1.0 MMbbl/d since the end of 2014,
and was up 1.4 MMbbl/d year-on-year.
Iraq is producing at its highest level
since 1979, and he pointed out Iran was
warning the cartel to expect another 1.0
MMbbl/d from its wells once sanctions
imposed over its nuclear program were
lifted.
According to Dietert, Simmons projected the call on OPEC for the second
half of 2015 at 30.3 MMbbl/d. He said
the cartel's production was expected to
top 31.0 MMbbl/d, which would oversupply the market. "When we look out,
it is really the second half of 2016 and
2017 when the market comes into better
balance," he offered.
Global production outside OPEC is
similarly bearish, he said. In the first
quarter of 2015, 80 percent of U.S. public
JULY 2015 157

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