US production could hit 9.9 million bpd
EIA April Short-Term Energy Outlook forecasts WTI crude oil prices will average $2 per barrel less than Brent prices in 2017-18
U.S. crude oil production is forecast to average 9.9 million barrels per day in 2018, a new record, the U.S. Energy Information Administration said April 11 in its Short-Term Energy Outlook.
“U.S. crude oil production is expected to be higher during the next two years than previously forecast, with annual output in 2018 now forecast to reach 9.9 million barrels per day, exceeding the previous record level of 9.6 million barrels per day reached in 1970,” EIA acting Administrator Howard Gruenspecht said in a statement.
EIA said estimated average production was 8.9 million bpd in 2016 and is forecast to average 9.2 million bpd this year. The 2018 forecast of 9.9 million bpd is 200,000 bpd higher than the agency’s previous forecast, and “reflects improvements to the rig methodology that captures increased cash flow as production increases,” EIA said.
Rig methodology changes have the largest effect on Permian and Niobrara production, while continued development in the federal offshore Gulf of Mexico at the Thunder Horse South Expansion and Gunflint, which began in 2016, contributes to higher forecast production from the federal offshore.
Crude pricesNorth Sea Brent crude oil spot prices averaged $52 per barrel in March, EIA said, $3 below the February average, and are forecast to average $54 this year and $57 per barrel in 2018, with West Texas Intermediate crude oil prices forecast to average $2 per barrel less than Brent this year and next.
EIA has previously forecast WTI prices to average $1 per barrel less than Brent prices. The agency said the $2 discount of WTI to Brent “is based on the assumption that the marginal market supplied by both crude oils has moved from the U.S. Gulf Coast to Asia.”
Crude oil traded in a narrow range for three months and then declined in March, EIA said, as “U.S. crude oil inventories built to a multi-decade high and as U.S. crude oil production rose.” The price decline was despite cuts in production by the Organization of the Petroleum Exporting Countries and some non-OPEC producers. (The OPEC agreement to cut crude oil production is for six months and was effective Jan. 1.) EIA said that pending an official announcement on an extension, it is assuming that OPEC production “will approach pre-agreement levels during the second half of 2017.”
The agency expects world crude oil and liquid fuels supply to grow by 1.1 million bpd this year and by 1.9 million bpd in 2018, an increase of 100,000 and 200,000 bpd respectively from the previous forecast because of higher expected U.S. and Brazilian production growth.
EIA said world liquid fuels consumption growth is mostly unchanged and that it “expects the market to be relatively balanced in 2017.”
“Reductions in international crude oil supply and rising U.S. crude oil production have put upward price pressure on the price premium of Brent crude oil to WTI crude oil in recent months,” the agency said.
The growth in U.S. production has lowered U.S. crude prices relative to international crude oil prices, and as a result more U.S. crude is being exported to balance the domestic light sweet crude oil market, EIA said.
The agency cited recent onshore-focused oil capital expenditures by 44 companies in the U.S., up 72 percent, $4.9 billion between the fourth quarter of 2015 and the fourth quarter of 2016, as supporting its expectations of higher U.S. production.
Natural gasEIA said the front-month natural gas futures contract for Henry Hub delivery settled at $3.33 per million British thermal units on April 6, up 53 cents per million Btu from March 1. The agency said a brief cold period in mid-March contributed to the increase in prices for the month.
The Henry Hub spot price averaged $2.88 per million Btu in March, more than $1 above the average of $1.73 per million Btu in March 2016.
The winters of 2015-16 and 2016-17 were both unseasonably warm, “but natural gas drawdowns were higher this season because of lower natural gas production and higher exports,” the agency said, adding that it expects exports to increase more than production, narrowing inventory levels to the five-year average which is reflected in the forecast for rising natural gas prices, expected to average $3.10 per million Btu this year and rise to $3.45 in 2018.
U.S. dry natural gas production is forecast to average 73.1 billion cubic feet per day this year, up 0.8 bcf from the 2016 level. “This increase reverses a 2016 production decline, which was the first annual decline since 2005,” EIA said. The agency is forecasting natural gas production to be 4 bcf per day above the 2017 level in 2018.