Tudor, Pickering, Holt & Co.’s energy investment and merchant banking analysts significantly cut their WTI oil price outlook for 2018. The group pared the price forecast for next year to $65 per barrel (bbl) from $75/bbl in response to revved up U.S. supply growth. For 2019 and beyond, they return to their prior call of $75/bbl as “U.S. cost inflation and limited OPEC capacity” maintain pressure on oil prices, according to a report released March 20.

The more conservative forecast sets oil prices at $55 for the second quarter of 2017, $60 for the third and $65 for the fourth.

U.S. drilling has already surpassed what TPH said was “even our aggressive forecast.” The group now looks for U.S. crude oil production growth to hit 1.2 MMbbl/d year-over-year (yoy) in 2018, up from their prior estimate of 800 Mbbl/d. Most of the growth will derive from Permian and Eagle Ford activity, with associated gas up 2 billion cubic feet annually yoy in the Permian alone.

Operators will persist in putting more rigs to work in 2017 and 2018, not moderating their pace until 2019-2020, according to the report. The analysts expect the Permian to deliver upward of 1.9 MMbbl/d, the Scoop/Stack 500 Mbbl/d, the Bakken 440 Mbbl/d and the Eagle Ford 400 Mbbl/d.

Inflation in drilling and completion costs will pressure prices and help to counteract the effects of production hikes. The TPH analysts project drilling and completions costs will creep up by 15% annually from the trough of 2016. They note that “each 10% increase in total well cost increases the ‘required’ oil price by $5 per barrel.” Among the risks cited in this forecast is service execution, “as a moribund oil service industry is called upon to go from near-death to a full sprint.”

Other basins that are ready to rally and produce more barrels—though certainly not on the scale of the Permian or Scoop/Stack—are the Bakken, Eagle Ford, Niobrara and the Midcontinent.

This year should continue to see an explosion in rigs put to work. TPH looks for oil-directed drilling in the U.S. to surge by more than 276 rigs this year and by 139 in 2018 before slowing.

The report projects oil demand growth in a conservative case at 1 MMbbl/d. Gasoline and diesel growth is slowing, but LPG demand is “surging” from petrochemical and residential needs, according to the report. Asia will continue as the largest regional market for oil, absorbing 32 MMbbl/d, or more than one-third of total global demand. India’s demand is expected to decline this year, while China’s should hold steady.

Regarding overall supply and demand models, the TPH analysts said they are assuming that OPEC will hold its cuts through this year and reverse back to fourth-quarter 2016 levels next year.