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EIA estimates US crude at 9.3 million bpd Agency says Brent expected to average $53 this year, $56 in 2018; WTI forecast at almost $5 below Brent in 2018; had been $2 lower Kristen Nelson
West Texas Intermediate crude oil prices are forecast to be some $5 per barrel lower than Brent in 2018, the U.S. Energy Information Administration said in its November Short-Term Energy Outlook.
“Brent crude oil prices averaged almost $58 per barrel in October, the highest monthly average since June 2015, as global oil stocks have fallen by an estimated 400,000 barrels per day over the past six months,” EIA acting Administrator John Conti said in a statement accompanying the November release.
EIA expects Brent spot prices to average $56 per barrel in 2018, up from an expected $53 per barrel average this year.
WTI prices averaged $2 per barrel lower than Brent through the first eight months of 2017, and then averaged $6 per barrel lower in September and October, a spread EIA said it expects to see continue through the first quarter of 2018, with a narrowing to $4 per barrel in the second half of 2018.
EIA said WTI crude oil differentials with Brent are near their widest for the year, with the WTI Cushing-Brent spread at $6.09 on Nov. 2 and the WTI Midland-Brent spread at $5.84 on that date. By comparison, the Light Louisiana Sweet-Brent spread was 34 cents Nov. 2.
Transportation costs EIA said the spread between WTI Cushing and Brent “likely reflects the transportation costs associated with bringing light sweet crude oil from Cushing, Oklahoma, to the U.S. Gulf Coast and the costs to export the crude oil to the marginal market.” Since LLS is produced in the Gulf of Mexico, “it competes with global waterborne crude oils without the same transportation costs faced by inland crude oil and, as a result, trades closer to Brent prices.”
The agency said pipeline expansions in recent years have increased crude flows into Cushing from Canada and the Bakken, contributing to relatively high crude oil stocks in the region. Increased output from the Permian basin in West Texas and New Mexico also flows into Cushing, while new pipeline connectivity has allowed more Permian barrels to flow directly to the Gulf Coast.
New pipeline capacity is expected to be brought online in the first quarter of 2018, but until then EIA said it expects Brent to remain some $6 per barrel higher than WTI, with the spread expected to narrow to $4 per barrel in the second half of the year, as a 400,000 barrel per day line from Midland to Sealy is expected to come online by the second quarter, increasing Permian flows to the Gulf Coast. EIA said the 200,000 bpd Diamond line from Cushing to Memphis, Tennessee, scheduled for completion by the end of this year, could also begin to reduce stocks in Cushing.
US production up EIA said that U.S. crude oil production is estimated to have averaged 9.3 million bpd in October, down 90,000 bpd from September.
“Despite lower production in the Gulf of Mexico during October, mainly attributed to Hurricane Nate, total U.S. crude oil production averaged 9.3 million barrels per day for the month,” Conti said. “Our forecast continues to expect overall U.S. production to average 9.9 million barrels per day for all of 2018,” he said.
Gulf of Mexico production averaged 1.4 million bpd in October, EIA said, down 260,000 bpd from September.
The agency said it continues to forecast U.S. crude oil production to grow, with the average for 2017 expected to be 9.2 million bpd, growing to 9.9 million bpd in 2018, which would be the highest annual average production for the U.S., surpassing the 9.6 million bpd record set in 1970.
Natural gas EIA is forecasting U.S. dry natural gas production to average 73.4 billion cubic feet per day this year, up 0.6 bcf per day from 2016. The 2018 level is forecast to be 5.5 bcf per day higher than this year.
The Henry Hub spot natural gas price averaged $2.88 per million Btu in October, down 10 cents from September.
Natural gas exports and consumption are both expected to grow in 2018, contributing to a forecast Henry Hub spot price averaging $3.10 per million Btu in 2018, up from $3.01 this year.
Liquefied natural gas exports increased in October over September, but despite growing export demand front-end futures prices remained in a narrow trading range, EIA said.
Bonding EIA said U.S. exploration and production companies issued $3.6 billion in high-yield bonds in October, “the largest amount issued during any month in 2017.” The agency said that Bloomberg data shows companies rated by at least one rating agency as below investment grade issued more bonds through October than in all of 2016.
“Many U.S. oil companies have been expanding drilling programs and development expenditures this year, and borrowing costs remain at levels similar to those when crude oil prices were more than $100 (per barrel),” EIA said.
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