American Oil and Gas Reporter - March 2019 - 115

crude oil supplies. Moreover, reports have
emerged that Saudi Arabia is prepared to
make even larger production cuts than it
agreed to in December with Russia and
the rest of Organization of Petroleum
Exporting Countries.
Current Saudi oil policy contrasts sharply
with Saudi policy under the leadership of
former Oil Minister Ali Al-Naimi. Whereas
Al-Naimi favored a strategy of short-term
pain to evaporate international oil investment
over a three- to five-year window, the kingdom today is focused on maximizing revenues. Saudi Arabia's oil revenues are
more sensitive to price than volume, and it
judges that cutting supply to boost prices
is the best way to maximize revenue.
Slower growth in U.S. oil production
also will boost crude oil prices. Drilling
picked up in the first half of 2018, but
the oil rig count was flat in the second
half of the year.
To be sure, U.S. oil production still is
expected to rise this year. As of November,
U.S. oil production had risen by 1.6 MMbbl/d, even though rigs stalled in the second
half. The well productivity growth that
propelled production is expected to continue
lifting U.S. oil output in 2019. But production growth certainly will be slower in
a $50 WTI environment than it was last
year, when WTI averaged $65 a barrel.

Crude Oil Outlook
We expect WTI crude oil to average
$59 a barrel this year and $64 in 2020. If
a global recession is not in the cards,
recent selling has been overdone. Once
investors' perception of the global economy improves, more of the fourth-quarter
sell-off will reverse.
We also expect Iran's oil production
to decline further. The Trump administration ultimately wants countries to completely cut off their Iranian crude oil imports. Although it granted eight important
countries waivers to continue their imports,
those waivers could be rescinded if countries do not make good faith efforts to
curb their imports over time.
Saudi Arabia's oil production is set to
decline because of the OPEC agreement
it helped spearhead late last year. However,
should oil prices rise swiftly because of
lower Iranian output or otherwise, the
Saudis will reverse course quickly. Saudi
policy is price sensitive. U.S. production
will continue to rise, buoyed by pipeline
construction that will narrow spreads.
The risks to our oil price outlook are
balanced. On the downside, a global economic slowdown that is more sinister than
Moody's Analytics expects would cause
oil prices to fall below our forecast. China's

economy is cooling already, and it is a
key driver of global oil demand growth.
On the upside, greater international
compliance with the United States' Iranian
oil sanctions could create a hole in global
oil supplies. China and India are key.
And if OPEC does not respond as expected, the loss of Iranian barrels may
not be offset.
❒

Gemini Midstream Plans
East Texas Gas Pipeline

HOUSTON-Gemini Midstream Holdings LLC and its affiliates have begun
developing the Gemini Carthage Pipeline,
a natural gas system in Texas' Harrison
and Panola counties capable of delivering
more than 1.2 billion cubic feet a day of
high-pressure dry gas into the Carthage,
Tx., area.
According to the company, the system
will be operational in the first quarter of
2019, and initially will serve gas produced
by Rockcliff Energy II LLC from a dedicated area encompassing more than
180,000 surface acres. Gemini Midstream
adds the new dedication will bring the
total gross acres dedicated to Gemini to
more than 260,000 surface acres across
East Texas and North Louisiana.
❒

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American Oil and Gas Reporter - March 2019

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