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EIA Short-Term: Crude surplus dropping
Agency projecting US crude production will continue to fall in 2020, producing the first annual US production decline since 2016 Kristen Nelson Petroleum News
In its current Short-Term Energy Outlook, released July 7, the U.S. Energy Information Administration noted a number of forecast changes from its June outlook and continued to emphasize, as it did in June, that the outlook “remains subject to heightened levels of uncertainty” because of COVID-19, with reduced economic activity related to the pandemic responsible for “changes in energy supply and demand patterns.”
EIA said the outlook is based on U.S. macroeconomic forecasts by IHS Markit, based on assumptions that U.S. gross domestic product declined by 6.4% in the first half of the year - compared to the same period in 2019 - and will rise through the rest of this year and 2021.
Oil prices “Average Brent crude oil spot prices increased by $11 per barrel last month, averaging $40 per barrel in June,” EIA Administrator Dr. Linda Capuano said in a statement accompanying the outlook release. “Oil prices rose as stay-at-home orders were lifted and OPEC+ extended its production cuts through July,” she said, with Brent expected to average $41 per barrel in the second half of 2020 and rise to average $50 per barrel next year.
While the $40 Brent average in June was up $11 from May, it was up $22 per barrel from “the multiyear low monthly average price in April,” EIA said, with the Brent forecasts of $41 and $50 up $4 and $2 per barrel, respectively, from the June outlook.
Inventory changes “Changes in supply and demand have shifted global oil markets from an estimated 21 million barrels per day of oversupply in April to inventory draws in June,” Capuano said, with June consumption estimated to be up by almost 10 million bpd from April, “at the same time that global supply fell by 12 million barrels per day as a result of reduced production from OPEC+ and price-driven declines in the United States and Canada,” she said.
EIA said it estimates that liquid fuels inventories were rising at a rate of 6.7 million bpd in the first half of the year, and are expected to decline by 3.3 million bpd in the second half of the year, and by 1.1 million bpd next year.
“Global oil demand continues to recover faster than previously estimated,” Capuano said, although liquid fuels consumption for the second quarter was down an average of 16.3 million bpd from the same period last year.
EIA said initial data indicate it overestimated demand declines, and said while it estimates second quarter liquid fuels consumption averaging 84.4 million bpd, with the drop of 16.3 million bpd from the second quarter 2019 the largest decline for any quarter on record, it had estimated a 16.6 million bpd drop in its June outlook and an 18.8 million bpd drop in the May outlook.
Initial second quarter consumption data for the U.S. was 400,000 bpd higher than estimated in June and about 300,000 bpd higher in both Canada and Brazil.
The agency also said its most recent estimates of global oil consumption in the second quarter were higher than previously forecast despite lower levels of global economic growth from Oxford Economics.
In this outlook, EIA said it assumes global oil consumption-weighted gross domestic product will decline by 5.7% from 2019, compared to an assumption in the June outlook of a 5% decline.
“The sharpest declines occur in the second quarter of 2020, when oil consumption-weighted GDP is estimated to have declined by 10.3% compared with the second quarter of 2019,” EIA said.
In the June outlook, the assumed decline in second quarter 2020 GDP was lower at 8.6%.
The 2021 global GDP weighted by oil consumption is projected to grow by 6.3%, EIA said.
US crude production “EIA expects U.S. crude oil production to continue to fall in 2020 as price-sensitive drilling continues to decrease in tight oil regions. This 2020 production decline is the first annual decline since 2016,” Capuano said.
EIA said with West Texas Intermediate spot prices expected to remain less than $50 per barrel through 2021, U.S. crude production is forecast to average 11.6 million bpd this year and 11 million bpd in 2021, 600,000 and 1.2 million bpd, respectively, lower than the agency’s June forecast.
The agency said it finalized the July forecast before the July 6 order temporarily closing the Dakota Access Pipeline.
Total liquid fuels production in the U.S. is projected to fall by 700,000 bpd this year, “largely as a result of reduced drilling in price-sensitive tight oil regions,” EIA said, with U.S production expected to fall by 300,000 bpd in 2021.
Natural gas U.S. natural gas production is projected to decline by 3% this year “as a result of decreased drilling activity and production curtailments caused by falling natural gas prices,” Capuano said.
“Henry Hub natural gas spot prices averaged $1.63 per million British thermal units in June, the lowest average price since at least 1989,” she said, with weak demand offsetting a decrease in production to keep prices low.
EIA is forecasting an increase to an average $1.93 per million Btu for the year and $3.10 in 2021.
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