EIA: Brent to stay in mid-$50s in 1st qtr

US crude production forecast to fall again this year; US natural gas exports as LNG expected to exceed pipeline exports by 2022

Kristen Nelson

Petroleum News

The U.S. Energy Information Administration said Jan. 12 in its Short-Term Energy Outlook that Brent crude oil spot prices are forecast to average $53 per barrel in both 2021 and 2022, compared with a 2020 average of $42 per barrel.

“EIA expects restrained oil production from OPEC+ countries will likely keep Brent crude oil prices in the mid-$50 per barrel range during the first quarter of 2021,” EIA Administrator Dr. Linda Capuano said in a statement accompanying the outlook release.

EIA noted that Brent crude traded in a wide range in 2020, averaging $64 per barrel in January, dropping to an average of $18 per barrel in April, “the lowest monthly average price in real terms since February 1999,” the result of significant consumption declines resulting in a sharp rise in global inventories. Prices increased throughout much of the rest of 2020 as “rising oil demand and reduced production caused global oil inventories to fall,” the agency said.

Brent rose to a monthly average of $50 per barrel in December, the agency said, and prices in early January this year “reached their highest levels in 10 months after Saudi Arabia announced a one-month unilateral cut to its crude oil production for February that is in addition to its OPEC+ commitments.”

EIA said that despite rising forecast oil prices early in the year, it “still expects upward price pressures to be limited through the forecast period because of high global oil inventory levels and surplus crude oil production capacity.”

“Growing global supply and demand lead EIA’s January Short-Term Energy Outlook forecast for petroleum and other liquid fuels through 2022,” Capuano said. “Reduced economic activity related to the COVID-19 pandemic caused sharp declines in 2020; however, we expect consumption and production to return to 2019 levels in early 2022,” she said.

Brent is forecast to average $51 per barrel in the second half of 2021 following “moderate il price pressures” at the beginning of the second quarter, EIA said, “when global oil production is forecast to rise and cause inventories to draw at a slower pace.”

West Texas Intermediate is forecast to average some $3 per barrel less than Brent this year and $4 less in 2022. This compares to the current discount of WTI to Brent of $2 on average in the second half of 2020, which, EIA said, “reflects significant declines in U.S. crude oil production and reduced available volumes of U.S. crude oil for export to distant markets relative to other global benchmarks,” the agency said.

US crude production to fall

The drop in 2020 production was “a result of well curtailment and a drop in drilling activity related to low oil prices,” the agency said.

Most Lower 48 crude oil, excluding Gulf of Mexico production, is tight oil. Lower 48 production hit a record 10.4 million bpd in November 2019, dropping to 8 million bpd in May, reflecting both a decline in drilling activity and well curtailment. By August, Lower 48 production had increased to 8.9 million bpd, “largely because operators reduced curtailments,” but with much of curtailed production back online, the agency said it “expects drilling activity and decline rate dynamics to again be the main drivers of production levels going forward. Because tight oil wells have steep decline curves in early years of production, continuous drilling of new wells is required to maintain average production in a region.”

Lower 48 production is expected to continue to decline through February “because declining legacy well production will offset production from new wells.” The agency said changes in oil prices affect tight oil production with about a six-month lag, and said it expects recent price increases will more active rigs will contribute to growth beginning in the second quarter, with average 2021 Lower 48 production expected to average 8.9 million bpd in 2021, 3% lower than 2020 levels.

Capuano said the U.S. exported more crude oil and petroleum products in 2020 on an annual basis than it imported “for the first time in EIA’s data series that dates back to 1949. EIA expects the United States to return to importing more crude oil and petroleum products than it exports on an annual basis in 2021 and 2022,” she said.

Natural gas

Net natural gas exports are forecast to rise from an average of 6.5 bcf per day in 2020 to 9.8 bcf per day in 2021 and 10.7 bcf per day in 2022. The U.S. has been exporting more gas than it imports since the second quarter of 2017, EIA said, with both liquefied natural gas and pipeline exports rising.

The U.S. is estimated to have exported 9.8 bcf per day of LNG in December, up 0.4 bcf per day from a record set in November, “driven by rising international natural gas and LNG prices in Europe and Asia, reduction in global supply because of several unplanned outages at LNG export facilities worldwide, and cold weather in key LNG consumption markets, particularly in Asia,” EIA said.

The U.S. also increased pipeline exports as Mexico has built more infrastructure, with pipeline exports averaging 8 bcf per day in 2020, up 2.5% from 2019.

Net natural gas pipeline imports, almost all from Canada, decreased, EIA said, continuing a trend which began in 2008.

“As a result of reduced natural gas production, EIA expects U.S. benchmark Henry Hub natural gas spot prices to increase by nearly one dollar in 2021. Rising natural gas prices will reduce natural gas use in the electric power sector as other fuel sources for producing electricity become more competitive,” Capuano said.

Henry Hub spot prices averaged $2.03 per million British thermal units in 2020 and are expected to increase to an average of $3.01 per million Btu in the first quarter of 2021, based on expectations of slighter cooler-than-normal weather in the first quarter.