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EIA says supply, demand to be in balance View from IEA that even with OPEC cuts, oil market in ‘wait-and-see mode’; EIA forecasts Brent average of $55 per barrel this year KRISTEN NELSON Petroleum News
The U.S. Energy Information Administration said Feb. 7 in its Short-Term Energy Outlook that it expects the oil market to be relatively balanced this year and next.
“Global oil supply and demand is now expected to be largely in balance during 2017 as the gradual increase in world oil inventories that has occurred over the last few years comes to an end,” EIA Acting Administrator Howard Gruenspecht said in a statement.
The International Energy Agency, however, appeared more cautious, saying Feb. 10 that high stocks and market caution over output cuts have the oil market in a “wait-and-see mode,” noting that in addition to a focus on OPEC compliance with production cuts, observers were focused on the expected recovery in U.S. light, tight, oil production.
IEA said production cuts by members of the Organization of the Petroleum Exporting Countries and others were at a record 90 percent compliance rate and called the cut “certainly one of the deepest in the history of OPEC output cut initiatives,” but also said OPEC production estimates for January are subject to revision.
Crude oil stocks continue high, 286,000 barrels above the five-year average at year end, and high stocks, plus caution on output cuts and production growth from other producers, explains why Brent crude oil prices have remained in the mid-$50 per barrel level since mid-December, IEA said.
IEA has 29 member countries, all net oil importers and all members of OECD, the Organization for Economic Cooperation and Development.
Demand growth EIA and IEA were in general agreement on demand growth, with IEA saying global growth has been revised upward for the third month and for 2016 overall is now seen at 1.6 million barrels per day. EIA said petroleum product demand is forecast to grow at a faster rate this year than in 2016, with the result that “global oil markets appear closer to balance than at any time in the recent past.”
EIA said petroleum and liquid fuels inventories are estimated to have increased by 800,000 barrels per day in 2016 and inventory draws are projected to average 100,000 bpd this year and build to average 200,000 bpd in 2018.
The agency said the forecast is revised from January, with the reduction in average inventory builds resulting “from changes to estimates of historical global liquid fuels consumption that created a higher base for consumption during recent years and the forecast period.”
Price North Sea Brent crude oil spot prices averaged $55 per barrel in January, up $1 from December. January was the highest monthly Brent average since July 2015, and $24 per barrel higher than the January 2016 average, EIA said.
Brent crude oil prices are forecast to average $55 per barrel this year and $57 in 2018, with West Texas Intermediate prices forecast to average about $1 per barrel less than Brent in 2017.
EIA said volatility in crude oil prices declined in December, a decline which continued in January. Front-month crude oil transactions traded in the mid-$50 per barrel range in January, the agency said, “with Brent crude oil prices trading in the narrowest range since May 2014 and WTI prices trading in the narrowest range since December 2006.”
The agency attributed relatively stable prices in January to production cuts by OPEC and non-OPEC countries, and said the narrow trading range “further suggests buyers and sellers increasingly agree that a mid-$50/b oil price is sufficient to balance the oil market, as global demand continues growing at a robust pace and producers begin to increase investments in new production.”
EIA forecasts Lower 48 crude oil production to average 6.88 million bpd in 2017 and 7.29 million bpd in 2018, increases of 70,000 bpd and 310,000 bpd, respectively, from the agency’s January forecast, reflecting a slightly higher oil price forecast and higher rig efficiencies.
For total U.S. production EIA said it is forecasting 8.98 million bpd this year and 9.53 million bpd in 2018, levels 20,000 bpd and 230,000 bpd higher, respectively, than its January forecast, reflecting a 100,000 bpd year-over-year increase in 2017 and a 500,000 bpd year-over-year increase in 2018. The agency said Baker Hughes is reporting a U.S. oil-directed rig count increase of 41 rigs in January, the eighth consecutive monthly increase and the first year-over-year increase since December 2014.
WTI Midland prices strengthened compared to similar light sweet crude oil at different hubs, with a decline in the WTI Cushing-WTI Midland differential and Light Louisiana Sweet-WTI Midland differential.
“Recent movements in U.S. crude oil price differentials could be reflecting infrastructure developments and changes in oil market trade flows,” the agency said, noting that a new export terminal at Ingleside, Texas, allows Midland area producers to ship crude directly to the export terminal, bypassing the Cushing storage and pipeline hub.
Natural gas EIA said the front-month natural gas contract for delivery at Henry Hub decreased by 14 cents per million British thermal units from Jan. 3 and settled at $3.19 on Feb. 2, with the monthly average natural gas spot price in January down 29 cents per million Btu from the December average.
Trading was in a more narrow range in January, compared to December, because of warmer weather across the Lower 48, the agency said, putting downward pressure on prices.
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