|
EIA says Brent to average $43 this year
US crude production forecast to average 13 million bpd in 2020, drop to 12.7 million in 2021, first year-on-year decline since 2016 Kristen Nelson Petroleum News
The U.S. Energy Information Administration delayed its Short-Term Energy Outlook by one day in March, allowing it to revise its forecast on results of the March 6 meeting of the Organization of the Petroleum Exporting Countries.
OPEC and non-OPEC allies failed to agree on production levels, allowing an existing agreement to terminate March 31.
“After the OPEC March 6 meeting, we revised our March forecast and now assume that OPEC countries will target market share rather than a balanced global market,” EIA Administrator Dr. Linda Capuano said in a March 11 statement accompanying the STEO release. “As a result we expect OPEC crude oil production will rise over the next two quarters,” she said.
EIA is now forecasting OPEC crude oil production to average 28.7 million barrels per day in the first quarter of this year, increasing to an average of 29.2 million bpd from April through December, and averaging 29.4 million bpd in 2021.
Demand, prices drop EIA has revised downward its outlook on global liquid fuels demand.
“We expect that global liquid fuels demand will grow by 0.4 million barrels per day in 2020, down from the 1.0 million barrels per day of growth we forecasted in February. The reduction in demand reflects market concerns over global economic growth primarily related to the effects of the coronavirus,” Capuano said.
EIA expects global demand for petroleum and liquid fuels to average 99.1 million bpd in the first quarter, down 900,000 bpd from the same period in 2019, and expects that demand to rise by less than 400,000 bpd in 2020 and by 1.7 million bpd in 2021.
Crude oil prices fell below $35 per barrel March 9, “the second largest daily price decline on record,” Capuano said. EIA is now forecasting Brent to average $43 per barrel this year, “reflecting the lower expected demand and higher OPEC supply for most of 2020.”
Brent averaged $64 per barrel in 2019, and EIA said it expects Brent to average $37 per barrel in the second quarter of this year, and rise to an average of $42 per barrel in the second half of the year, increasing to an average of $55 per barrel in 2021, “as declining global oil inventories put upward pressure on prices.”
Lower US production “We expect that lower forecast oil prices in mid-2020 will reduce U.S. drilling activity in late 2020 and in early 2021,” Capuano said, with U.S. oil production forecast to average 13 million bpd this year and fall to 12.7 million bpd in 2021.
“This would be the first year-on-year decline in production since 2016,” she said.
EIA said its models show oil prices affect production with about a six-month lag, and despite forecast annual average growth of 800,000 bpd in 2020, EIA said it expects monthly U.S. production to begin declining around May, falling from 13.2 million bpd in May to 12.8 million bpd in December.
Natural gas Natural gas prices stayed at historically low levels, due to warmer-than-normal February temperatures, which reduced demand for space heating in the U.S.
“We expect prices to rise in the second quarter of 2020 as natural gas used for power generation increases and U.S. production decreases,” Capuano said.
And, while EIA forecast a 3% increase in U.S. dry natural gas production from 2019 to 95.3 billion cubic feet per day this year, “monthly production should generally decline through 2020,” she said.
“If 2021 production averages 92.6 billion cubic feet per day as forecast, it would be the first decline in average annual U.S. natural gas production since 2016,” Capuano said.
EIA said the Henry Hub natural gas spot price averaged $1.91 per million British thermal units in February and is forecasting prices to average $2.22 per million Btu in the third quarter.
Henry Hub spot prices are forecast to average $2.11 per million Btu this year, rising to an average of $2.51 in 2021.
U.S. dry natural gas production set a record in 2019, averaging 92.2 bcf per day, and was forecast to average 95.3 bcf this year, but monthly production is now expected to decline through 2020, from an estimated 96.5 bcf per day in February to 92.3 bcf in December, with production falling mostly in the Appalachian and Permian regions, EIA said.
Low natural gas prices are discouraging producers from natural gas drilling in the Appalachian region, the agency said, “and in the Permian region, low oil prices reduce associated gas output from oil-directed wells.”
Crude oil EIA said Brent settled at $34.36 per barrel on March 9, and West Texas Intermediate at $31.13 per barrel, down $20.09 per barrel and $18.98 per barrel respectively from Feb. 3.
Futures for Brent and WTI declined by 24% and 25%, respectively, on March 9, “the second largest one-day decline in each of their respective futures price histories.”
EIA acknowledged “significant uncertainty amid a highly volatile market environment,” citing several recent developments which have contributed to significant revisions in its outlook for global oil demand and supply.
The agency said slowing forecasts for global economic growth, “primarily as a result of COVID-19,” was leading to “significant downward revisions” in its global oil demand forecast, with restrictions on international and domestic travel as a result of cases of the virus outside China, as well as reduced global manufacturing activity.
EIA said lower assumptions of economic growth, less expected air travel and other reductions in demand are the main drivers of its reduced demand forecast.
The forecast assumes demand effect from COVID-19 “will diminish by the third quarter.”
And, as a result of the March 6 OPEC and partners meeting, “EIA no longer assumes production management from OPEC members or partner countries that were previously voluntarily reducing production.” The agency said that it had previously assumed that OPEC would limit 2020 and 2021 production “to target relatively balanced global oil markets.”
Also a factor is lower forecast oil prices leading to lower U.S. production “as a result of a price-induced reduction in drilling and completion activity.”
| 