EIA forecasts higher volumes, lower prices
US production estimated at 12 million bpd for January, expected to hit 13 million bpd in 2020, but Brent down $10 from January 2018
Forecasts for Brent and West Texas Intermediate crude oil spot prices for this year and next are down in the February Short-Term Energy Outlook from the U.S. Energy Information Administration, while forecasts of U.S. crude oil production are up - both in comparison to the EIA’s January forecasts.
EIA said Brent and West Texas Intermediate are now forecast to average $62 per barrel and $58 per barrel, respectively, in 2020, down $3 from the January forecast, with the lower price reflecting “the expectation of looser global oil market balances in 2020 compared with last month’s outlook.”
Global oil supply was revised up for 2020, the agency said, “largely as a result of higher forecast crude oil production in the United States,” with U.S. crude oil production forecast to average 12.4 million barrels per day this year and 13.2 million bpd in 2020, both up 300,000 from the January forecast, reflecting “an assumption of more productive wells both in the Permian Basin and in the Gulf of Mexico.”
EIA said the increases were the result of “incoming data during the month,” and the agency’s assumption that pipeline constraints in the Permian basin do not moderate production growth as much as previously thought.
EIA Administrator Dr. Linda Capuano said the February outlook “revises the forecast for U.S. crude oil production in 2019 and 2020, expecting increased growth during both years. U.S. production is on pace to average 13 million barrels per day in 2020, which puts the nation on track to set a new production record for a third consecutive year.”
Permian, Gulf of Mexico“Continuing growth from the Permian Basin and the Gulf of Mexico helped U.S. crude oil production exceed 12 million barrels per day on average in the first month of the year, according to the February outlook,” Capuano said.
EIA said that estimated 12 million bpd average is an increase of 90,000 bpd from December. The agency is now forecasting U.S. production to average 12.4 million bpd in 2019 and 13.2 million bpd in 2020, “with most of the growth coming from the Permian region of Texas and New Mexico.”
PricesEIA said that following two months of oil price declines, crude prices increased throughout January and into February “as global oil supplies declined relatively quickly.”
The agency said the agreement by the Organization of the Petroleum Exporting Countries and non-OPEC nations to reduce production by 1.2 million bpd began in January, and Saudi Arabia said it was reducing production by more than originally agreed. There have also been unplanned supply outages which reduced Libyan production from 1.2 million bpd down to some 800,000 bpd in November, as well as production restraints in Alberta, which the agency said it estimates contributed to a decline in Canadian supply of some 400,000 bpd. EIA said there was no immediate loss to global availability from the U.S. sanctions in late January on Venezuela’s state-owned oil company, PDVSA, but the sanctions “may disrupt regular trade flows and increase the risk for an oil supply outage.”
The agency said an expectation for lower demand contributed to falling prices in December but may have ebbed somewhat in January.
SupplyEIA said that while there are forecasts of global oil inventory draws in February, along with lower forecast OPEC oil production compared to January, it “forecasts that U.S. crude oil production growth will offset decreases in OPEC production throughout the forecast.”
Reductions in oil production affect different qualities of oil, the agency said, with reductions from OPEC, Canada and the threat of Venezuelan disruptions “likely increasing the price of medium and heavy crude oils compared with light crude oils,” because those countries tend to produce crude oil with higher sulfur content.
The agency said the price of Mars - a medium, sour crude produced in the U.S. Gulf - has increased compared to light, sweet oils.
US companiesEIA said publicly traded U.S. exploration and production companies issued the lowest amount of new funding last year since at least 2013. Several factors likely contributed, including relatively higher interest rates. The agency said companies may have needed less outside capital: “Through third-quarter 2018, a group of 46 U.S. oil producers generated $56 billion in cash flow from operating activities,” EIA said, with cash flow from operations in the first three quarters of 2018 “higher than full-year amounts from 2015-17,” and 2018 cash flow likely the highest since 2014, with $60 billion in capital expenditures and a net $8 billion in asset sales. “Because cash from operations plus asset sales exceeded capital expenditures, many companies may have had enough cash to fund their investing activities without the need to issue debt or equity.”