Energy 'continues to be more of a supply crunch story,' KPMG Global Head of Energy says

KPMG’s Global Head of Energy Regina Mayor joins Yahoo Finance Live to discuss the outlook for oil in 2022.

Video Transcript

KARINA MITCHELL: We'll stay on the energy sector and bring in our next guest, Regina Mayor, KPMG's global head of energy. Regina, thanks so much for joining us. So energy was an outperformer, obviously, in 2021, starting the day strong today as well. What do we expect as far as prices into this coming year and the volatility involved as well?

REGINA MAYOR: I expect more of the same, Karina, relative to price and volatility, at least through the first half. You're going to see a lot of upward pressure on Brent and WTI prices. It continues to be more of a supply crunch story versus a demand. We had the momentary Omicron demand concerns, which Jared pointed out on the chart. But I think we've largely moved out of that.

And there's growing evidence that OPEC+ actually doesn't have near the amount of spare capacity that they had indicated in the past. And that's what the market is starting to price in. On the second half of the year, I expect things to stabilize a little bit more. I do expect US production to increase more than some of the other analysts are projecting, because prices, if WTI and Brent go into the 80s, it will spur more US-based production.

ALEXIS CHRISTOFOROUS: So Regina, we saw WTI, crude jump 85% last year. So from what I'm hearing, you're not expecting that kind of a bullish year for oil. But what is your price target for WTI and Brent this year?

REGINA MAYOR: For sure, it was 85% last year. And it was even higher in 2020 because we settled negative in April 20, 2020. So I expect more moving around between perhaps the low 80s, maybe even brush in the mid 80s, and then down to where it is now, 70s or mid-70s. I don't expect super high upward pressure toward 100, like some analysts have predicted.

And I definitely don't see a dramatic fall, because I think the supply that we have is really the world supply that we are able to get access to. And it's just going to take more years in development for more supply to come on stream. That's not something that you can turn the tap on very quickly. And I think that's going to be the major story throughout 2022, is it's more about supply crunch versus demand shortfalls.

KARINA MITCHELL: And then what do you see as far as merger and acquisitions happening? What did they signal about US shale activity moving forward?

REGINA MAYOR: I think the consolidations in US shale bode very well for more production coming out of the US. In the last week in December, the EIA reported that the US was producing 11.8 million barrels per day. The high was in the 12.3, 12.5 million barrels per day overall. I expect that we're going to continue to see increased US shale production while the industry remains its focus on capital discipline and returning shares and dividends back to their shareholders. But with prices of WTI in the high 70s, and even potentially getting into the 80s, you will see US shale companies putting more money into development. And the consolidations, I think, make it easier to better take advantage of Permian acreage for more effective, more optimum drilling and completions and production ultimately to increase out of the US.

ALEXIS CHRISTOFOROUS: And what should investors be focusing on when they look at the regulatory environment for energy in 2022 and what the Biden administration may be planning? Where might investors see some opportunities and take advantage of more of the dividend and share buyback action that you were just referring to?

REGINA MAYOR: So Alexis, I think this sector is going to continue to be an outperformer for the rest of 2022. And while there is regulatory uncertainty, I do predict that you will see governments around the world looking for ways to bolster hydrocarbon production and make sure that those stocks are plentiful, available, and affordable to their populaces. If we have an extremely cold winter in Europe but then natural gas prices accelerate, like we are seeing with LNG cargoes that are going to Europe at very, very high prices, I think it's going to mean that you're going to see policy advocates balancing the overall push toward climate change to ensure energy security and energy affordability.

So I think that message is going to help. And I would ask investors to watch that environmental uncertainty, the regulatory uncertainty. And I think you'll see more positive policies supporting hydrocarbons, but hydrocarbons that are lower in carbon intensity so that you can have the security and affordability that we need to meet our huge energy demands.

KARINA MITCHELL: And then, Regina, what sort of factors do geopolitical risks pose, particularly with Russia and Iran?

REGINA MAYOR: That's going to be where you could potentially see some of the big, more volatile spikes upward, depending on what happens with Iran and what we're learning relative to their nuclear activity, depending on whether or not tensions continue to rise in the Middle East with some of the different players. That could cause supply chokeholds that will create potential significantly volatile upward pressure on price.

KARINA MITCHELL: All right, Regina Mayor, KPMG's global head of energy, we'll have to leave it there. Thank you so much for stopping by today.