EIA expects $60 range for Brent in ’18, ’19
US crude estimated at 10.1 million bpd in January, for a new monthly record; 10.6 million expected in 2018, 11.2 million in 2019
North Sea Brent crude oil spot prices averaged $69 per barrel in January, the U.S. Energy Information Administration said in its monthly Short-Term Energy Outlook, released Feb. 6. That $69 average is up $5 from the December level. Average Brent prices have increased for seven consecutive months, moving above $70 on Jan. 11 for the first time since December 2014.
EIA Administrator Dr. Linda Capuano said in a Feb. 6 statement that, “EIA’s forecast expects Brent crude oil prices to be in the $62 per barrel range in 2018 and 2019. That’s down a bit from current levels, as strong U.S. production growth is expected to help moderate global prices.”
EIA said it expects West Texas Intermediate crude oil prices to average $4 per barrel lower than Brent in both 2018 and 2019.
U.S. crude oil production is estimated to have averaged more than 10 million barrels per day in January, up 100,000 bpd from December.
“After exceeding 10 million barrels per day last November, a first since 1970, EIA estimates U.S. crude oil climbed to 10.1 million barrels per day in January, which would be the highest for any month on record,” Capuano said.
“February’s short-term outlook revises the forecast for increased oil production over the next two years,” she said. “We now expect U.S. crude oil production to average 10.6 million barrels per day in 2018 and 11.2 million barrels per day in 2019.”
EIA said an average of 10.6 million bpd this year would mark the highest average annual U.S. crude oil production level, surpassing the 9.6 million bpd average in 1970.
Natural gasU.S. dry natural gas production averaged 73.6 billion cubic feet per day in 2017 and EIA is forecasting that it will reach 80.3 bcf per day this year.
“Natural gas is poised to set a record annual increase and record production level in 2018,” Capuano said. “EIA expects a production increase of 6.7 billion cubic feet per day in 2018, climbing from 73.6 billion cubic feet per day in 2017 to more than 80 billion cubic feet per day,” with growth from 2018 to 2019 projected to be lower, but close to 3 percent year-over-year, she said.
Henry Hub natural gas spot prices averaged $3.88 per million British thermal units in January, up $1.06 from December, EIA said, with cold temperatures east of the Rocky Mountains early in January contributing to high levels of natural gas consumption. There was also a reduction in production because of well freeze-offs, the agency said, with the combination resulting in record high natural gas inventory withdrawals in mid-January, which contributed to rising prices.
“Record natural gas production in the coming months should allow prices to pull back from January’s highs,” Capuano said, with increases in production in February expected to continue through 2019, reducing natural spot prices to an average of some $3.20 per million Btu in 2018 and $3.08 in 2019.
EIA expects Henry Hub to average $3.34 per million Btu in February.
Crude oilEIA said oil inventories in the U.S. and globally have fallen steadily over the past seven months, one contributor to Brent reaching more than $70 per barrel in mid-January. The agency said there may also have been some price support from the Organization of the Petroleum Exporting Countries, where some members at a monitoring committee meeting suggested extending the current production reduction agreement beyond the end of the year.
“Rapid declines in Venezuelan crude oil output are also likely contributing to higher crude oil prices,” EIA said.
U.S. imports of Venezuela crude declined to some 400,000 bpd for the four weeks ending Jan. 26, the agency said, approaching the lowest level in decades, with trade press reports indicating that workers at the Venezuela natural oil company may be fleeing the company amid social unrest.
“Improved global economic growth expectations could also be supporting oil prices,” EIA said.
The decline in crude oil inventories in the U.S. was 6 million barrels in the first four weeks of the year, contrasting to a five-year average build of 14 million barrels in that same period.
And U.S. crude oil exports were up, averaging 1.4 million bpd for the four weeks ending Jan. 26, compared to an average of 700,000 bpd in January 2017.
Oil pricesEIA said U.S. crude oil prices compared to Brent diverged from recent trends in January, with the Light Louisiana Sweet price difference with Brent falling from a slight premium to Brent to $1 or more under Brent for 23 consecutive trading days in December and January, the longest stretch where LLS traded more than $1 under Brent since February and March 2015.
LLS remained lower even after the Forties Pipeline was restored to full service, and EIA said the discount could be due to the startup of the Diamond pipeline from Cushing, Oklahoma, to Memphis, Tennessee, “which may be lowering the demand for U.S. Gulf Coast crude oil from refineries in the U.S. Midwest.”
WTI Cushing and WTI Midland increased relative to Brent, with the spreads settling at $4.02 and $3.82 per barrel on Feb. 1, increases of $2.30 and $1.70 respectively, since Jan. 2.
“The Diamond pipeline startup and a likely reduction in Canadian crude oil deliveries to Cushing have contributed to a stock draw at the hub of 12 million barrels since the last week of December and likely increased WTI Cushing prices,” while cold weather in Texas led to some production shut-ins, increasing the WTI Midland-Brent oil spread.