Oil Industry Rebounds in 2021; Forecasters Predict Solid 2022

Covid-19 was a major factor in the decline of demand for energy in 2020 and it sent shock waves throughout the oil and natural gas industry. The price of oil and natural gas crashed through the floor and ended in some areas in negative territory during April 2020.

Companies cut capital expenditures and did everything they could to prevent bankruptcy. Some made it, but many did not.

By January 2021 oil prices rebounded to $60 per barrel and the future looked much better.

Actually, many oil and gas exploration companies did very well. ExxonMobil and Chevron came back making a profit after reporting a loss in two quarters in 2020. ExxonMobil’s stock rose from 47 in January 2021 to 71 this week. Chevron’s stock rose from 92 a year ago to 127 this week.

Some of the smaller independent companies did even better. EOG Resources, based in Houston, witnessed its stock increase from 60 to 102, and Pioneer Natural Resources, based in Irving, experienced similar growth from 115 a year ago to 204 on Wednesday.

The Wall Street Journal recently reported on the industry’s good fortune in a story with the headline stating “S&P 500’s Energy Sector on Pace to Hit Record Annual Gain.”

The newspaper reported in its January 8-9 edition the S&P 500 Energy sector had the largest gain of any sector at 10.62% followed by Nymex natural gas at 4.99% and Nymex crude oil at 4.91%.

The state of Texas benefitted, too. The Texas Oil & Gas Association reports during the fiscal year 2021 the state and local governments received $15.8 billion in taxes and royalties, an increase of about 20%.

Quite a turnaround from the dismal economic conditions just a short time ago.

And the Energy Information Administration reported this week crude oil and natural gas prices should remain strong in 2022 as global demand rises.

“Global oil consumption outpaced oil production for the six consecutive quarters ending with the fourth quarter of 2021, which has led to persistent withdrawals from global oil inventories and significant increases in crude oil prices,” EIA stated in its Short-Term Energy Outlook released Jan. 11.

EIA forecasts Brent crude oil will average $75, and West Texas Intermediate will average $71 in 2022.

EIA believes the average price of gasoline will be around $3.06 compared to the average price in 2021 of $3.01.

“U.S. crude oil production in 2021 averaged 1.1 million b/d lower than the annual record high of 12.3 million b/d set in 2019. We expect annual average U.S crude oil production will increase to 11.8 million b/d in 2022 and to 12.4 million b/d in 2023,” EIA stated.

Natural gas will be a major source of generating electricity in the U.S. accounting for 35% followed by coal (22%), nuclear (20%), wind and solar (13%) and hydropower (7%).

Natural gas prices at Henry Hub will average $3.79 per million British thermal units in 2022 down from the $3.91 average in 2021, according to EIA’s forecast.

Alex Mills is the former President of the Texas Alliance of Energy Producers.