Oil prices are set for an upswing but the situation “could get worse before it gets better,” said EnerVest Ltd.'s CEO, John Walker.

U.S. oil inventory is setting records “and we can’t export our oil. ... I wouldn’t be surprised if [WTI] did go into the $30s as a result.” Two operators of Cushing, Okla., storage cited a bottom in the $30s as well at a Credit Suisse LLC conference in February.

Oil in U.S., commercial storage grew by 4.8 million barrels the week ending March 27, according to EIA data. Of this, 2.6 million barrels were added to tanks at Cushing, taking the total to 58.9 million. Nymex (CME Group) oil contracts are based on delivery to Cushing. EIA analysts Hannah Breul and Owen Comstock reported last week that working-storage capacity at Cushing is 70.8 million barrels.

An eventual upswing in U.S. and world oil prices will be the result of that 6 million barrels of global, daily, oil supply vanishes each year if there is no investment in new wells, Walker told attendees at a Texas Alliance of Energy Producers reception recently.

The number is the result of that global demand is currently 92 million barrels a day and his analysis of an IEA study that shows that global supply declines an average of 6.7% a year from existing oil wells in the world’s 800 largest fields.

In addition, lower oil prices will result in increased demand. “The drop from $107 a barrel to where we are today (at about $49) is about a $2-trillion gift from our industry to consumers around the world. It’s a little more than 2% of worldwide GDP. So we should see demand go up.”

Walker expects a price recovery will begin in the second half and into 2016.

“Right now, we have about 1.5 million barrels of daily surplus, worldwide. As we get into the summer, we’re going to realize that we’re not replacing the decline curve and meeting demand. That helps me get more optimistic about price as we get into the second half of this year.”

This downturn is Walker’s seventh in his career. “For the most part, they have something like a V [-shaped] return because within the seeds of the [price] decline is the basis for the recovery.”

Some 900 rigs working onshore the U.S. have been idled, leaving roughly 1,000 still at work. When considering the effect of this on U.S. production, Walker conceded that “you have to look at the quality of the rigs (still) drilling and where they’re drilling,” thus how much new production will result from those still at work may not be identical to the nearly 50% drop in the rig count.

“But we’re all laying down rigs,” he said. EnerVest has gone “through five different budgets and we finally just gave up. We said, ‘We’re going to look at (each well) on an AFE basis and, if we’re not hitting our rate of return (target), we’re just not going to drill it.’”

Regarding the U.S. ban, which does have some exceptions, on oil exports, he said, “there was a reason in the 1970s for the export ban; there is no reason for it today. The world really doesn’t have an oil problem; it has a light-oil problem. The U.S. has a light-oil problem and we can’t export something the world wants.”

The odds of getting it repealed this or next year are slim, however. Walker is a former chairman of the Independent Petroleum Association of America (IPAA) and remains active in the organization. Some members of Congress “are just scared to death to place a vote that could possibly mean higher gasoline prices,” he said. Studies consistently show that lifting the ban would result in a lower, U.S., gasoline price, since U.S. oil refiners can export gasoline, thus the product is priced based on Brent rather than WTI.

Bruce Vincent, the retired president of Swift Energy Co. (NYSE: SFY) and also a former IPAA chairman, told Investor at the reception that members of Congress understand this, but they fear that a gasoline-price spike as a result of rising oil prices or some other event will be viewed by U.S. voters as the result of them having lifted the export ban.

Walker said, “There is no logic for it; it is purely emotional.”

Meanwhile, he added, “what a great industry to be in to think that we were able to get oil and gas molecules out of nano-spaces and as rapidly as we’ve been able to develop that. There is more acreage, where we can’t figure out how to (economically) get it out right now. But, five, 10, 30 years from now, we will be getting those reserves out.”

The current downturn is painful. “But how many industries could sustain an over 50% revenue drop and still be functional? And that’s a compliment to our banks too. They want to work with us.”

EnerVest expects the first closing of its 14th investment fund in mid-April and final closing in June. The fund is expected to be between $2.5- and $3 billion to buy onshore-U.S., oil and gas properties.

Contact the author, Nissa Darbonne, at ndarbonne@hartenergy.com.