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EIA: US crude production, prices falling Agency says Brent forecast at $40 this year, $50 in 2017; low oil prices resulted in first annual production decline since 2008 KRISTEN NELSON Petroleum News
Brent crude oil prices are forecast to average $40 per barrel this year and $50 per barrel in 2017, the U.S. Energy Information Administration said Jan. 12 in its Short-Term Energy Outlook.
The agency said North Sea Brent crude oil averaged $38 per barrel in December, down $6 per barrel from November “and the lowest monthly average price since June 2004.” Brent averaged $52 per barrel in 2015, down $47 per barrel from the 2014 average of $99 per barrel, “as growth in global liquids inventories put downward pressure on Brent prices throughout much of the year,” EIA said.
The agency attributed the drop in prices in December to the Dec. 4 meeting of the Organization of the Petroleum Exporting Countries at which the cartel indicated it would continue the policy of defending market share in a low oil price environment and as global oil inventories continued to build. EIA said inventories rose by an estimated 1.9 million barrels per day in 2015, and are expected to continue to grow this year, with the largest inventory builds in the first half of the year, keeping the Brent price below $40 per barrel through April.
EIA said West Texas Intermediate crude is forecast to average $2 lower than Brent this year and $3 lower in 2017. The agency said it had previously assumed that the 2016 discount of WTI to Brent would be $5 per barrel and said the lower forecast discount “is based on the relative storage availability in the United States compared with other regions that encourages placing crude oil in the U.S. market in a period of global oversupply.”
US production down “Because of low crude oil prices, U.S. crude oil production is forecast to fall almost 700,000 barrels per day this year, the first annual decline since 2008,” EIA Administrator Adam Sieminski said in a statement.
U.S. crude oil production averaged an estimated 9.4 million barrels per day last year, EIA said, and the forecast for 2016 is an average of 8.7 million bpd, dropping to 8.5 million bpd in 2017, 1.2 million bpd below the April 2015 level, the highest monthly production since April 1971.
EIA said it estimates that U.S. crude oil production fell 80,000 bpd in December from November levels.
The agency said its 2016 and 2017 forecasts reflect a decline in Lower 48 onshore production driven by low oil prices and only partially offset by growing Gulf of Mexico production.
Estimates for U.S. production include EIA surveys of oil production from the largest oil producers in 15 states and the federal Gulf of Mexico, which show U.S. production began falling in May. Lower 48 production has fallen nearly 500,000 bpd, with those declines partially offset by production growth of 100,000 bpd in the Gulf of Mexico since April.
Lower 48 impacts EIA said WTI prices fell below $40 per barrel in December and are expected to stay below $40 through mid-2016, with most onshore Lower 48 production expected to decline. Companies expect reduced cash flows in 2016 and 2017, the agency said, and many have scaled back investment, deferring major investments until there is a sustained price recovery.
“The prospect of higher interest rates and tougher lending conditions will likely limit the availability of capital for many smaller producers, giving rise to distressed asset sales and consolidation of acreage holdings by more financially sound firms,” the agency said, with the count of oil-directed onshore rigs and completions expected to be below current levels this year and in 2017.
Drilling and production activities will focus in core areas of major tight oil plays, EIA said, noting that despite the 2015 rig decline, core counties in the Bakken, Eagle Ford, Niobrara and Permian have seen rig counts stabilize. The agency said that in those areas there have been falling costs and technological and process improvements expected to lead to faster rates of well completions “and less-rapid production declines relative to other Lower 48 onshore areas.”
Natural gas Henry Hub spot natural gas prices are forecast to average $2.65 per million Btu this year and $3.22 in 2017, EIA said, compared with an average of $2.63 in 2015, with prices rising through much of 2016 from $2 per million Btu at the beginning of the year.
Natural gas production growth is expected to be relatively flat this year partly due to low prices and declining rig activity, the agency said.
Total marketed production of natural gas hit a record high of 80.2 billion cubic feet per day in September before declining in October, and EIA said it is estimating that marketed natural gas production averaged 79.1 bcf per day, up 4.2 bcf, 5.7 percent, from 2014. Growth is projected to slow to 0.7 percent this year, the agency said, “as low natural gas prices and declining rig activity begin to affect production.”
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