The US Energy Information Administration (EIA) significantly revised its short-term outlooks for global oil supply, demand, and prices in light of the Mar. 6 Organization of Petroleum Exporting Countries (OPEC) meeting and doesn’t see balance returning to the market until fourth-quarter 2020.
Published in its latest Short-Term Energy Outlook (STEO), EIA’s forecast now assumes that OPEC will target market share instead of a balanced global oil market. Previously, EIA assumed OPEC would limit production in 2020 and 2021 in an effort to maintain relatively balanced global oil markets.
EIA forecasts OPEC crude oil production will average 29.2 million b/d from April through December 2020, up from an average of 28.7 million b/d in the first quarter of 2020. EIA forecasts OPEC crude oil production will rise to an average of 29.4 million b/d in 2021. Beginning with the April 2020 STEO, EIA will include Ecuador’s production volumes in non-OPEC data.
With a reduced assumption for global economic growth along with reduced expected travel globally because of the 2019 novel coronavirus disease (COVID19), EIA expects global petroleum and liquid fuels consumption will average 99.1 million b/d in the first quarter of 2020, a decline of 900,000 b/d from the same period in 2019. EIA expects global petroleum and liquid fuels demand will rise by less than 400,000 b/d in 2020 (a reduction from the January STEO forecast of 1.3 million b/d), and by 1.7 million b/d in 2021.
Most of the reduction is in China, where EIA lowered expected growth for 2020 to 100,000 b/d, down from a forecast of 500,000 b/d in the January STEO. EIA also made significant downward revisions to the demand forecasts for Japan, South Korea, and Italy.
EIA’s forecast assumes the demand effects from COVID-19 will diminish by the third quarter of 2020, with demand growth resuming its previous trend through the remainder of the forecast.
EIA expects that global liquid fuels inventories will grow by an average of 1.0 million b/d in 2020 after falling by about 100,000 b/d in 2019. EIA expects inventory builds will be largest in the first half of 2020, rising at a rate of 1.7 million b/d because of slow oil demand growth.
Firmer demand growth as the global economy strengthens and slower supply growth will contribute to balanced markets in the fourth quarter of 2020 and global oil inventory draws in 2021. EIA expects global liquid fuels inventories will decline by 400,000 b/d in 2021.
Prices
EIA forecasts Brent crude oil prices will average $43/bbl in 2020, down from an average of $64/bbl in 2019. For 2020, EIA expects prices will average $37/bbl during the second quarter and then rise to $42/bbl during the second half of the year. EIA forecasts that average Brent prices will rise to an average of $55/bbl in 2021, as declining global oil inventories put upward pressure on prices.
US crude oil production
Lower forecast crude oil prices lead to lower US crude oil production. EIA forecasts that US crude oil production will average 13.0 million b/d in 2020, up 800,000 b/d from 2019, but then fall to 12.7 million b/d in 2021.
The forecast decline in 2021 is in response to lower oil prices and would mark the first annual US crude oil production decline since 2016. EIA models show oil prices affect production after about a six-month lag. Despite forecast annual average growth of 0.8 million b/d in 2020, EIA expects monthly US crude oil production to begin declining around May, with production falling from 13.2 million b/d in May to 12.8 million b/d in December 2020.
US natural gas
In February, the Henry Hub natural gas spot price averaged $1.91/MMbtu. Warmer-than-normal temperatures in February reduced demand for space heating and put downward pressure on prices. EIA forecasts that prices will begin to rise in the second quarter of 2020 as US natural gas production declines and natural gas use for power generation increases the demand for natural gas.
EIA expects prices to average $2.22/MMbtu in the third quarter of 2020. EIA forecasts that Henry Hub natural gas spot prices will average $2.11/MMbtu in 2020, and will then increase in 2021, reaching an annual average of $2.51/MMbtu.
US dry natural gas production set a record in 2019, averaging 92.2 bcfd. Although EIA forecasts dry natural gas production will average 95.3 bcfd in 2020, a 3% increase from 2019, however, monthly production will generally decline through 2020, falling from an estimated 96.5 bcfd in February to 92.3 bcfd in December.
The falling production mostly occurs in the Appalachian and Permian regions. In the Appalachian region, low natural gas prices are discouraging producers from engaging in natural gas-directed drilling, and in the Permian region, low oil prices reduce associated gas output from oil-directed wells. In 2021, EIA forecasts dry natural gas production will rise from December 2020 levels in response to higher prices.
Total US working natural gas in storage ended February at 2.1 tcf, 9% more than the 5-year (2015–19) average. EIA forecasts that total working inventories will end March at 1.9 tcf, 12% more than the 5-year average. In the forecast, inventories rise by almost 2.1 tcf during the April through October injection season to reach almost 4.0 tcf on October 31.
