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EIA forecasts lower OPEC production North Sea Brent spot prices average $50 in May, down $2 from April, expected to average $53 per barrel this year, $56 next year Kristen Nelson Petroleum News
The U.S. Energy Information Administration said June 6 in its Short-Term Energy Outlook that North Sea Brent crude oil spot prices averaged $50 per barrel in May, down $2 from the April average. The price is forecast to average $53 per barrel this year and $56 per barrel in 2018, with West Texas Intermediate crude oil spot prices forecast to average $2 per barrel less than Brent in both years.
The agency is forecasting crude production from the Organization of the Petroleum Exporting Countries to average 32.3 million barrels per day this year and 32.8 million in 2018, based on the extension of voluntary production cuts, through March 2018, that OPEC announced May 25.
U.S. crude oil production averaged an estimated 8.9 million bpd last year and is forecast to average 9.3 million this year.
“U.S. crude oil production in 2018 is forecast to average 10 million barrels per day, well above the previous annual record production level of 9.6 million barrels per day set in 1970,” EIA acting Administrator Howard Gruenspecht said in a statement.
“Increased drilling activity in U.S. tight oil basins, especially those located in Texas, is the main contributor to oil production growth, as the total number of active rigs drilling for oil in the United States has more than doubled over the past 12 months,” Gruenspecht said.
US natural gas production up EIA said dry U.S. natural gas production is forecast to average 73.3 billion cubic feet per day this year, up 1 bcf per day from 2016.
“After declining during 2016, U.S. natural gas production is forecast to increase in both 2017 and 2018,” Gruenspecht said.
EIA said the 2016 decline was the first annual decline in U.S. natural gas production since 2005.
The agency said capital expenditures for 22 U.S. natural gas producers increased year-over-year in the first quarter of this year, after almost two years of annual declines.
Natural gas futures prices averaged $1.98 per million British thermal units in the first quarter of 2016, rising to $3.06 in the first quarter of 2017, a 55 percent year-on-year increase, EIA said.
“Higher prices increased cash flow, which helped to stabilize and eventually increase capital expenditures. With natural gas prices projected to rise by the fourth quarter of 2017, producers are continuing to add drilling rigs,” the agency said.
The natural gas directed drilling rig count was 100 rigs higher for the week ending June 2 than at the same time last year, with increases in rig counts and drilling efficiencies both contributing to the EIA’s forecast of an average of 76.6 bcf per day production next year, up for an expected 73.3 bcf this year.
Brent down 89 cents EIA said Brent front-month crude prices have declined by 89 cents since May 1, settling at $50.63 per barrel June 1. WTI declined by 48 cents during the same period, settling at $48.36, with the prices for May $1.98 per barrel lower for Brent and $2.54 lower for WTI than April.
OPEC extended voluntary production cuts May 25, and EIA said the “high level of global fuels inventories relative to their five-year average level appeared to be a significant consideration” in the decision.
In the Organization of Economic Cooperation and Development commercial inventories of liquid fuels remain 257 million barrels higher than the five-year average, a 79 million barrel reduction since January 2017.
Production cuts/growth EIA noted that voluntary OPEC production cuts are being “partially offset by production growth in other countries, moderating the pace of liquid fuels inventory draws in 2017.”
OPEC production, now forecast to average 32.3 million bpd this year and 32.8 million bpd in 2018, is 200,000 bpd and 400,000 bpd lower than previously forecast, and EIA said it now expects global inventories to decline by almost 200,000 bpd this year, with the largest draws expected in the third quarter.
The agency said that if inventory draws of this magnitude happen and gross U.S. refinery runs remain above 17 million bpd, “the possibility exists for some upward pressure on crude oil prices,” with Brent expected to average $54 in the third quarter.
“However, because U.S. tight oil production is relatively responsive to changes in oil price, and given an estimated six-month lag between a change in oil prices and realized production, higher crude oil prices in mid-2017 have the potential to raise U.S. production in 2018,” EIA said.
This expectation could contribute to oil price weakness in late 2017 and early 2018, EIA said, adding that the current forecast assumes OPEC’s cuts are extended beyond March 2018, but that non-compliance begins to grow late this year and increases somewhat in 2018.
Supply growth from the U.S., Brazil and OPEC in 2018 is expected to contribute to inventory growth by some 100,000 bpd next year.
EIA said growth in U.S. production has been the largest contributor to the 800,000 bpd non-OPEC supply gain from January through May of this year.
U.S. oil-directed active rigs dipped to 316 in May 2016 and more than doubled to 733 at the beginning of June.
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