EIA revises up 2020 oil price forecasts on larger forecast stock draws

In its August Short-Term Energy Outlook (STEO), the US Energy Information Administration (EIA) forecasts Brent crude oil spot prices will average $41/bbl in 2020 and $50/bbl in 2021 and West Texas Intermediate (WTI) spot prices will average $39/bbl in 2020 and $46/bbl in 2021.

The new forecasts display slight increases in 2020 prices, reflecting larger forecast stock draws in the second half of 2020, EIA said.

EIA now estimates that global liquid fuels inventories rose at a rate of 6.4 million b/d in the first half of 2020 and expects they will decline at a rate of 4.2 million b/d in the second half of 2020 and then decline further by 800,000 b/d in 2021.

In last month’s STEO, EIA estimates global liquid fuels inventories rose at a rate of 6.7 million b/d in the first half of 2020 and expects they will decline at a rate of 3.3 million b/d in the second half of 2020 and then decline by a further 1.1 million b/d in 2021 (OGJ online, July 7, 2020).

Global oil demand

The front-month futures price for Brent crude oil settled at $45.09/bbl on Aug. 6, 2020, an increase of $3.06/bbl from July 1, 2020. The front-month futures price for WTI crude oil for delivery at Cushing, Oklahoma, increased by $2.13/bbl during the same period, settling at $41.95/bbl on Aug 6.

Crude oil prices developed a narrow trading range in July as price volatility declined to the lowest levels since January 2020.

Global petroleum demand continued to recover in July, but continued growth in global coronavirus cases could bring renewed lockdown measures and presents considerable uncertainty to global oil demand for the remainder of the year.

World oil-weighted real gross domestic product (GDP) declined 9.3% in second-quarter 2020—one of the largest declines for any quarter on record—however, a number of leading indicators suggest increases in economic activity since then in some sectors, such as manufacturing.

EIA estimates that demand for global petroleum and liquid fuels averaged 93.4 million b/d in July, down 9.1 million b/d from July 2019, but it was up from an average of 85.0 million b/d during second-quarter 2020, which was down 15.8 million b/d from year-ago levels.

According to EIA’s latest forecasts, consumption of petroleum and liquid fuels globally will average 93.1 million b/d for all of 2020, down 8.1 million b/d from 2019, before increasing by 7.0 million b/d in 2021.

Global oil production

EIA estimates that global liquid fuels production averaged 91.8 million b/d in the second quarter of 2020, down 8.6 million b/d year over year. The decline reflects voluntary production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+), and reductions in drilling activity and production curtailments in the US because of low oil prices.

In the forecast, the global supply of oil continues to decline to 90.4 million b/d in the third quarter of 2020 before rising to an annual average of 99.4 million b/d in 2021.

US oil demand

EIA estimates that US liquid fuels consumption averaged 16.2 million b/d in the second quarter of 2020, down 4.1 million b/d (20%) from the same period in 2019, reflecting travel restrictions and reduced economic activity related to COVID-19 mitigation efforts.

EIA expects US oil consumption will generally rise through the end of 2021. EIA forecasts US liquid fuels consumption will average 18.9 million b/d in the third quarter of 2020 (down 1.8 million b/d year over year) before rising to an average of 20.0 million b/d in 2021.

Although the 2021 forecast level is 1.6 million b/d more than EIA’s forecast 2020 consumption, it is 400,000 b/d less than the 2019 average.

US crude oil production

EIA has lowered US crude oil production estimates for 2020 by 370,000 b/d from the previous STEO. EIA now expects crude production to average 11.3 million b/d in 2020 and 11.1 million b/d in 2021, down from 12.2 million b/d in 2019.

Recently released EIA data show that average monthly US oil production for May was 1.2 million b/d lower than the July STEO forecast, indicating more extensive production curtailments than previously estimated.

Also, EIA’s August STEO assumes that the Dakota Access Pipeline will remain operational. A US District Court ordered on July 6 the temporary closure of the Dakota Access Pipeline beginning in early August. A US appeals court has overturned the lower court decision, allowing the pipeline to remain running while further litigation proceedings continue.