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May Brent $77, highest since November 2014
EIA forecasts Brent average of $71 this year, $68 in 2019; WTI expected to average almost $7 below Brent this year, $6 lower in 2019
Kristen Nelson Petroleum News
The U.S. Energy Information Administration said June 12 in its Short-Term Energy Outlook that Brent crude oil averaged $77 per barrel in May, up $5 per barrel from April, and the highest monthly average since November 2014.
“The forecast for Brent crude oil is for spot prices to remain above $70 per barrel this year, as global oil demand outpaces supply,” EIA Administrator Dr. Linda Capuano said in a statement. “Global oil supplies have been lower than expected, notably because of outages in major oil producer, Venezuela. Our forecast indicates Brent crude oil prices will decline to an average of $68 per barrel in 2019, as U.S. crude oil production continues to grow at a rapid pace.”
EIA’s forecast for this year remains $71 per barrel. The 2019 forecast price, $68 per barrel, is up $2 per barrel from the May forecast. The agency said it expects West Texas Intermediate to average almost $7 per barrel lower than Brent in 2018 and $6 lower in 2019.
US production U.S. crude oil production continues to grow.
Capuano said the agency continues to expect “robust growth” in domestic production, with an increase of more than 15 percent from 2017 to 2018, “eclipsing an average of 11 million barrels per day during the fourth quarter of 2018.”
EIA estimates U.S. crude oil production averaged 10.7 million barrels per day in May, up 80,000 bpd from April, and is projecting an average of 10.8 million bpd this year, up from 9.4 million bpd in 2017 and rising to an average of 11.8 million bpd in 2019.
Natural gas U.S. dry natural gas production averaged 73.6 billion cubic feet per day in 2017, and EIA said it is forecasting an average of 81.2 bcf in 2018, which would be a new record.
“EIA’s June outlook increased the forecast for U.S. dry natural gas production this year,” Capuano said, and the agency now expects an increase of more than 10 percent in 2018, “reaching a record 81 billion cubic feet in 2018.”
EIA expects production to continue to grow in 2019 to some 83.8 bcf per day, up about 3 percent from 2018.
“Increased production and added infrastructure have positioned LNG exports for considerable growth in 2018 and 2019,” Capuano said. “EIA’s June outlook is that U.S. LNG exports will exceed an average of 5 billion cubic feet per day in 2019, compared to last year’s average of just under 2 billion cubic feet per day. Assuming the forecast holds, U.S. exports of LNG will more than double over a 24-month period,” she said.
U.S. LNG exports averaged 1.9 bcf per day last year and are forecast to average 3 bcf this year and 5.1 bcf per day in 2019, EIA said.
The Henry Hub natural gas spot price is expected to average $2.99 per million British thermal units this year and $3.08 in 2019.
Crude prices EIA said Brent traded above $80 per day briefly in late May before declining in the first week of June, with the May increase attributed to declining production from several members of the Organization of the Petroleum Exporting Countries, including Venezuela and Nigeria, “and as markets accounted for the uncertainty surrounding Iran’s future crude oil production levels.”
The Iran uncertainty was due to the U.S. announcement that it would withdraw from the Joint Comprehensive Plan of Action and reinstate sanctions on companies doing business with Iran.
OPEC, Russia and other non-OPEC countries are scheduled to meet June 22 “to access current oil market conditions as they relate to their existing crude oil production reductions, which are scheduled to continue through the end of 2018,” EIA said, with oil ministers from Saudi Arabia and Russia announcing they will reevaluate the production reduction agreement.
EIA said that in this forecast it assumes some supply increases from major producers next year and said pending outcome of the June 22 meeting the magnitude of any increase is uncertain.
OPEC is forecast to produce an average of 32 million bpd this year and 32.1 million bpd in 2019, levels which are 200,000 and 300,000 bpd lower, respectively, than those the agency forecast in May.
The agency said it is currently forecasting an increase in global crude production of 210,000 bpd in 2019, which is expects “will put modest downward pressure on crude oil prices in the second half of 2018 and in 2019.”
EIA noted that prices for longer-dated futures contracts have increased by larger percentages in the past six months than in the second half of last year. As an example the agency cited Brent crude oil prices for December 2022 delivery, which increased by 6 percent from June 7, 2017, to Dec. 7, 2017, while the same contract increased 12 percent from Dec. 7 to June 7, settling at more than $60 per barrel.
“Upstream crude oil production projects with long lead times and investment periods often use futures prices several years in advance to aid final investment decisions,” EIA said. “Higher prices for longer-dated futures contracts could trigger increased investment interest in upstream projects that would begin producing oil in future years.”
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