US ’18 production at 10 million bpd
Overall higher production expected to curb oil prices this year, next; North Sea Brent spot averaged $52 in April, up $1 from March
The average for North Sea Brent crude oil spot prices was $52 per barrel in April, up $1 per barrel from March, the U.S. Energy Information Administration said May 9 in its monthly Short-Term Energy Outlook. EIA said April was the fifth consecutive month that Brent averaged between $50 and $55 per barrel. The agency forecasts Brent to average $53 per barrel this year and $57 in 2018, with West Texas Intermediate crude forecast to average $2 per barrel less than Brent in both years.
Crude oil prices rose in the first half of April, but fell during the second half and on May 4 reached the lowest point since the end of November, EIA said. The April 3 to May 4 decline for Brent front-month futures was $4.74 per barrel, to $48.38, while WTI was down $4.72 per barrel to $45.52. The April spot price average was still 72 cents above March for Brent and $1.73 per barrel above March for WTI.
“Upside support for crude oil prices resulting from voluntary production cuts or unplanned outages over the past months has been countered by rising crude oil production in Libya and in the United States,” EIA said. At the beginning of May, Libya said its crude oil production had increased to the highest level since late 2014, and U.S. crude oil production was estimated to have reached 9.1 million barrels per day in April, “the highest level since March 2016,” EIA said.
Lower price forecastThe agency said it is projecting more supply growth in the global crude oil market this year and next, “resulting in a lower forecast of crude oil prices in the coming months.”
The agency’s current 2017 forecast for Brent of $53 per barrel is down $1 per barrel from its April forecast; the 2018 forecast remains the same at $57 per barrel.
“Higher oil production from the United States, along with rising oil output from Canada and Brazil, is expected to curb upward pressure on global oil prices through the end of 2018,” Acting EIA Administrator Howard Gruenspecht said in a statement.
In the U.S. the number of drilling rigs targeting oil reached a two-year high at the beginning of May.
“Increased drilling rig activity is expected to boost U.S. crude oil production this year and next, with forecast production in 2018 averaging 10 million barrels per day,” Gruenspecht said.
There is a lag between deployment of drilling rig and oil production, EIA said, with recent rig increases indicating that U.S. production “will likely rise further in the coming months.”
Extension possibleEIA said that reports from the Joint Organization of the Petroleum Exporting Countries and the non-OPEC Ministerial Monitoring Committee suggested compliance with production cuts remained high in March and said because global oil inventories remain high, “oil ministers of several OPEC countries, including those of Saudi Arabia, Kuwait, and Iraq, have suggested their respective countries would support an extension of the crude oil production cut agreement for six months beyond the current end date in June.”
The agency said the combination of expectations of supply growth this year, plus concerns that a proposed extension of the production cut agreement will not reduce inventories as quickly as expected both contributed to the sharp drop in crude oil prices in the first week of May.
More global oil supply growth is expected compared to April, EIA said, and this results in a lower forecast of oil prices for the coming months. Current growth projections are higher by some 200,000 bpd this year and by 100,000 bpd in 2018, with expected liquid fuels consumption growth largely unchanged. EIA is projecting liquids fuel supplies to grow by an estimated 1.4 million bpd this year and 1.9 million bpd in 2018, compared to growth in consumption of 1.6 million bpd this year and next.
Natural gasThe Henry Hub price for natural gas averaged $3.10 per million Btu in April, up 22 cents from March, EIA said, with U.S. dry natural gas production forecast to average 74.1 billion cubic feet per day this year, up 1.8 bcf per day from 2016. “This increase reverses a 2016 production decline, which was the first annual decline since 2015,” the agency said.
U.S. natural gas production is forecast to be 3.2 bcf per day more in 2018 than this year.
EIA said Henry Hub is expected to average $3.43 per million Btu next year, up from an expected $3.17 this year, with the increase due to new natural gas export capabilities and growing domestic consumption.
Natural gas storage injections averaged 51 bcf per week in the four weeks ending April 28, almost 10 bcf per week more than the five-year average for those weeks.
“With natural gas production returning to growth in recent months after declining in 2016, higher natural gas exports have helped moderate inventory builds this year,” EIA said.