Drawing from several sources for reliable data, including the U.S. IEA, the overall consensus has natural gas and crude oil prices continuing to stagnate until at least the end of 2022. Cutting to the chase, the reason is good ol’ fashioned economics. Too much production and not enough consumption. But that is an overly simplistic summary of the basic situation, albeit an accurate one.
Digging a little deeper, we see the signals of slowing economies around the globe. Japan, Korea, even India are seeing slight drops in the quarterly GDP numbers, according to recently reported data (http://www.oecd.org/economic-outlook/, retrieved 11-30-2019). A slowdown in gross domestic product (GDP) worldwide explains the reduction in fuel consumption, namely natural gas and crude oil. Yet America continues to produce both at near-top speed. At least for now.
The overall forecast for worldwide economy contraction appears to be based on a short time span of data analysis. An entire chain reaction in markets predictions is created by this one, single assumption (right or wrong) that the World is going into a recession. Time will tell, but any number of geopolitical, geological, and environmental disruptors could immediately derail these dire predictions. Two or more countries in a strategic location somewhere in the world that could disrupt merchant logistics could suddenly go to war, for example. Or an earthquake of sufficient magnitude to disrupt normal trade processes could occur. Yet still, an unseasonably cold winter or heat-wave summer could occur, or prolonged droughts or severe flooding in world regions most dependent upon natural gas and oil for continued economic growth.
Not to be overlooked, the trade re-negotiations between the U.S. and China could either suddenly resolve fueling sudden economic expansion worldwide again, or could end in a standoff which would, without a doubt, damage China economically far worse than it would the U.S. It would take China years, if not decades, to rebuild their economic expansion to the same pace where it was before we pulled their hand out of the Intellectual Property cookie jar. We’re learning now the magnitude of impact China’s economy has on the other large economies surrounding it: Japan, Korea, India, as well as all of the other smaller Asian economies dependent upon the outsourced manufacturing market.
Natural gas and oil (along with coal, which the U.S. exports in very large volume at this point) fuels all of this. Energy is required throughout every inch of the international markets that comprise our global economy. The U.S. is not an island, but in terms of our resilience to economic downturn as compared to other world economies, we might as well be.
Where does all of this leave the U.S. mineral owner and U.S. oil industry professional? In a holding pattern, unfortunately. According to the following table, energy prices will remain flat through at least the end of 2020. The EIA predicts prices to be flat through 2023 (https://www.eia.gov/todayinenergy/detail.php?id=34672), but a lot can happen between now and then. Oil is also predicted to languish for the next two to three years, but again, no one has a crystal ball—only assumptions.
U.S. mineral owners and U.S. oil industry professionals will need to tighten their seat belt. Royalty checks will shrink steadily for the next two to three years, and oil industry layoffs and buyouts will increase. Drilling will continue to fall off, until supply and demand once again meet in the middle. But just like it has proven before, the U.S. energy industry is cyclical, and “this too, shall pass.”