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April 2018

Vol. 23, No.15 Week of April 15, 2018

EIA forecasts Brent at $63 through 2019

WTI expected to average $4 below Brent; US crude forecast at 10.7 million bpd this year, a new record, rising to 11.4 million in 2019

Kristen Nelson

Petroleum News

The U.S. Energy Information Administration’s forecast for Brent crude oil spot prices in its April Short-Term Energy Outlook remains roughly the same as the March outlook.

“The short-term outlook continues to forecast that Brent crude oil spot prices will average $63 per barrel in both 2018 and 2019, while West Texas Intermediate will remain below $60 per barrel, averaging about $4 per barrel less than Brent in both years,” EIA Administrator Dr. Linda Capuano said in a statement.

The forecast is up slightly from March, when EIA said Brent was expected to average $62 this year and next; the $4 price differential for WTI remains the same. EIA said in the April 10 release that Brent averaged $66 per barrel in March, which is up slightly from the $65 average in April.

The EIA forecasts for Brent compare to a 2017 average of $54 per barrel.

US crude production

“EIA continues to forecast record crude oil production in the United States for both 2018 and 2019, largely as a result of horizontal drilling and hydraulic fracturing in tight rock formations, especially in the Permian region,” Capuano said. “April’s short-term outlook expects U.S. production to average 10.7 million barrels per day in 2018, which would be a new record and represent an increase of nearly 15 percent from 2017 to 2018.”

The 2019 crude oil production forecast is 11.4 million bpd.

The previous record for U.S. production was 9.6 million bpd set in 1970, EIA said.

US natural gas

“U.S. dry natural gas production also remains on pace for record levels in both 2018 and 2019, according to the forecast. This year’s production is poised to increase by 7.5 billion cubic feet per day over 2017 levels to an average just above 81 billion cubic feet per day,” Capuano said.

The 2017 average was 73.6 bcf per day; the 2018 forecast is 81.1 bcf, which would be a new record, the agency said. The 2018 to 2019 increase is projected at 1.7 bcf per day.

“The April short-term outlook maintains the forecast for U.S. natural gas net exports increasing to historic levels in both 2018 and 2019,” Capuano said. “U.S. natural gas trade was almost balanced between exports and imports in 2017, but, in this forecast, EIA expects that the United States will see net natural gas exports climb above 4 billion cubic feet per day by 2019 as LNG terminals continue to come online,” she said.

The numbers in the EIA forecast are an increase in U.S. natural gas consumption of 4.2 bcf per day, 5.7 percent, this year and 0.7 bcf per day, 0.9 percent, in 2019, led by electric power generation.

Net natural gas exports increased by 0.4 bcf per day in 2017, and the annual average is expected to be 2.2 bcf this year and 4.4 bcf in 2019.

Henry Hub natural gas spot prices are expected to average $2.99 per million British thermal units this year and $3.07 in 2019.

Crude oil markets

EIA said continuing draws on U.S. and global oil inventories combined with actual and potential supply disruptions may have put upward pressure on crude oil prices in March. “Economic and political instability in Venezuela continues to affect its crude oil production,” the agency said, with March production averaging 1.5 million bpd, a year-over-year decline of some 24 percent. There is also uncertainty on the U.S. extension of the Joint Comprehensive Plan of Action and without an extension there could be a reinstitution of sanctions on Iran, which could affect that country’s oil production and exports.

On the demand side, upward oil price pressures may have been tempered by political issues such as the U.S. and China announcing potential tariffs on several billion dollars’ worth of each other’s goods. “A slowdown in global trade could affect oil demand and presents downside risks to the global oil consumption forecast,” EIA said, noting that the forecast was revised up from the previous outlook, and said it forecasts that global oil consumption will grow by 1.8 million bpd per day both this year and next.

Financials

EIA said fourth-quarter 2017 financials for 46 U.S. oil exploration and production companies “reveal significant effects from the changes to corporate income tax law enacted at the end of 2017,” with the producers collectively claiming $7 billion in tax benefits in the quarter.

U.S. companies, the agency said, were also allowed to accelerate depreciation of capital investments made through 2023.

“These two factors could contribute to an increase in investment in upstream production,” EIA said.

EIA said capital expenditures for 20 U.S. natural gas producers rose to $4 billion in the fourth quarter, up $1.4 billion from the prior year and the second highest quarterly expenditure in two years.

“Higher revenues and lower costs helped this group of companies report a positive net income in 2017 after two years of losses,” the agency said.

Capital expenditures have exceeded cash from operations for the natural gas producers since at least 2013, the agency said, but “the difference narrowed in 2016 and 2017, reducing the need for other types of financing such as issuing debt or equity.”

Since 2014 there have been both cost declines and productivity increases, allowing companies to do more with lower expenditures.

EIA said as a result U.S. dry natural gas production was up 3 bcf per day in the fourth quarter of 2017, “the largest quarter-over-quarter increase since 1991.”





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