At the beginning of each year, I make several predictions about the energy sector. You can see those predictions and read the context for my Energy Sector Predictions For 2022.
There are still a few days left in 2022, but I believe there is enough available information to gauge the accuracy of these predictions.
As always, I provided predictions that were specific and measurable. Following each prediction, I discuss what actually happened in 2022, and conclude whether the prediction was right or wrong.
1. The average price of WTI in 2022 will be between $70/bbl and $75/bbl.
The spot price of West Texas Intermediate (WTI) on December 19, 2022 was $75.05 per barrel (bbl). That’s not far from where we started the year ($75.99/bbl). But Russia’s invasion of Ukraine sent oil prices on a wild ride in 2022. Prices soared to over $120/bbl, which has only ever happened once before (in 2008).
Thus, the average price of WTI for the year (through 12/19/22) was $95.44/bbl, significantly more than I expected.
I find that this is consistently the hardest prediction to nail, simply because global events can swing oil prices wildly. I think the prediction would have been close to correct had Russia not invaded Ukraine, but those kinds of geopolitical events are always a wildcard when attempting to predict oil prices.
2. Total U.S. oil production will increase for the first time in three years.
We won’t have final monthly numbers from the EIA until early next year, but through September, average daily oil production in the U.S. is 11.7 million barrels per day (BPD). This is already higher than the 11.3 million BPD average of 2021, but it will be even higher once the final numbers are in because the weekly numbers for the past three months have averaged over 12 million BPD. It seems likely that the average daily production for 2022 will be about 11.8 million BPD, which would be the second-highest level ever recorded.
3. The average natural gas price will be lower than it was in 2021.
In 2021 the average Henry Hub natural gas spot price was $3.89/MMBtu, which was the highest annual average since 2014. I believed U.S. production would increase in 2022, and that did in fact happen. When the final numbers are in, it looks like 2022 will represent the highest U.S. natural gas production on record.
However, once again Russia’s invasion of Ukraine disrupted the energy markets. As Europe grappled to fill a shortfall of Russian natural gas — and U.S. producers exported as much as they could — natural gas prices averaged $6.48/MMBtu (through 12/20/22).
This was a significant miss.
4. The Biden Administration will announce additional releases of oil from the SPR ahead of the midterm elections.
Although the Strategic Petroleum Reserve (SPR) is supposed to be used in case of emergency, politicians have historically used it for political purposes. Primarily, when voters are complaining about gasoline prices, presidents have released oil in an attempt to cause prices to dip. The fact that it was an election year led me to make this prediction.
This is yet another prediction that was impacted by Russia’s invasion of Ukraine. In order to minimize market disruptions, President Biden announced the largest release from the SPR in history. So this prediction was certainly correct, but the release was far greater than I ever would have imagined.
5. The Invesco Solar ETF (TAN) will return at least 20%.
Technology stocks were battered in 2022, and most of the stocks that make up the Invesco Solar ETF (TAN) fall into the category.
In 2021, TAN lost 27% as rising input costs hit renewable energy companies across the board. I felt like shares would bounce back in 2022. I was right, and then I was wrong.
TAN closed 2021 at $76.97. Shares reached $91.12 in August, a return of 18% since the end of 2021. However, rising interest rates hit the market hard in the second half of the year, and that 18% gain has turned into a 4% loss with a few trading days left in the year.
So, this one was wrong, but at one point it was within 2% of being right. I do note that I wasn’t specific enough on this one. I didn’t say that TAN would close the year with a 20% gain; only that it would return at least 20%. It nearly did this, but this one still goes into the “miss” column.
I got two out of five completely right this year, I was directionally correct on the solar ETF prediction for most of the year, but I had significant misses on the price of oil and gas due to Russia’s invasion of Ukraine and the subsequent disruption to the world’s energy markets.
As always, I will provide new predictions in early January.
By Robert Rapier