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Global oil inventories up, Brent down EIA says global oil increased some 1.3 million bpd in November, causing downward pressure on North Sea Brent crude oil prices KRISTEN NELSON Petroleum News
North Sea Brent crude oil prices averaged $44 per barrel in November, the U.S. Energy Information Administration said in its Short-Term Energy Outlook released Dec. 8.
That $44 per barrel average is a drop of $4 from the Brent average in October. EIA said it is forecasting that Brent crude oil prices will average $53 per barrel this year and $56 per barrel in 2016, with the West Texas Intermediate crude oil price forecast to be $4 lower than Brent this year and $5 lower in 2016.
EIA Administrator Adam Sieminski said lower U.S. residential heating costs are expected. “The effect of lower crude oil prices, along with the potential for above-average temperatures (in the Lower 48), is spilling over to lower residential heating oil expenditures, as the average household using heating oil should save almost $600 this winter,” he said in a Dec. 8 statement on the December forecast.
EIA also said U.S. crude oil production declined by some 60,000 bpd in November compared with October, and is forecast to drop further through the third quarter of 2016. U.S. crude oil production is projected to average 9.3 million bpd this year and 8.8 million bpd in 2016.
Production outpaces consumption Globally, crude oil production continues to outpace consumption, the agency said, leading to inventory builds which averaged 1.8 million bpd in the third quarter, down from 2 million bpd in the second quarter, “which had the largest inventory builds since the fourth quarter of 2008.”
EIA expects the pace of inventory builds to slow in the fourth quarter to some 1.4 million bpd, and to slow further to an average of 600,000 bpd in 2016.
Global consumption of petroleum and other liquids grew by 1.2 million bpd in 2014, the agency said, averaging 92.4 million bpd. For 2015 and 2016, EIA expects consumption to grow by 1.4 million bpd.
Consumption outside the Organization for Economic Cooperation and Development increased by 1.4 million bpd last year and is projected to grow by 800,000 bpd this year and 1.1 million bpd in 2016, with China continuing to be the main driver of non-OECD oil consumption growth.
OECD petroleum consumption fell by 300,000 bpd in 2014 and is expected to rise by 600,000 bpd this year and by 300,000 bpd in 2016, averaging 46.7 million, the highest level since 2010. U.S. consumption is expected to grow by an average of 300,000 bpd this year and by 200,000 bpd in 2016.
Non-Organization of the Petroleum Exporting Countries’ production grew by 2.5 million bpd last year, mainly reflecting growth in the U.S. Non-OPEC growth is expected to average 1.2 million bpd in 2015 and then decline by 400,000 bpd in 2016, “which would be the first annual decline in non-OPEC production since 2008,” EIA said.
“Non-OPEC production growth in 2015 is large attributable to investments committed to projects before the oil price decline that began in mid-2014,” the agency said, with 2016 declines mostly attributable to U.S. onshore and North Sea production declines.
OPEC continues production At its Dec. 4 meeting OPEC announced it would continue to monitor developments, indicating OPEC producers “are continuing the policy of defending market share in a low oil price environment.”
EIA said it estimates OPEC production averaged 31.4 million bpd in November, 1.3 million bpd higher than November 2014, mainly driven by increased production in Saudi Arabia and Iraq.
OPEC production is estimated to have averaged 30.1 million bpd in 2014, and is forecast to increase by 900,000 bpd this year, “led by production growth in Iraq.” OPEC crude oil production is forecast to increase by 300,000 bpd in 2016, “with Iran forecast to increase production once international sanctions targeting its oil sector are suspended.”
The price decrease The Brent crude oil spot price decreased in November to an average of $44 per barrel, while the WTI crude oil spot price averaged $42 per barrel, down $4 per barrel from October, “as crude oil inventories in the Cushing, Oklahoma, storage hub increased in November despite rising refinery inputs of crude oil following seasonal maintenance.”
EIA said its crude oil price forecast, an average of $53 per barrel this year and $56 per barrel in 2016, “remains subject to significant uncertainties as the oil market moves toward balance. During this period of price discovery, oil prices could continue to experience periods of heightened volatility.”
The agency said uncertainties in the oil market include the pace and volume at which Iranian oil reenters the market, the strength of oil consumption growth and responsiveness of non-OPEC production to low oil prices.
EIA said U.S. crude oil production is projected to increase from a 2014 average of 8.7 million bpd to a 2015 average of 9.3 million bpd and then decrease in 2016 to 8.8 million bpd.
U.S. monthly crude oil production is estimated to have averaged 9.4 million bpd through the first nine months of the year, EIA said, 100,000 bpd more than the average during the fourth quarter of 2014, despite a decline of more than 60 percent in the U.S. oil-directed rig count since October 2014.
Monthly crude oil production started to decrease in the second quarter 2015, with Lower 48 onshore production declining starting in April, falling from 7.6 million bpd in March to an estimated 7.1 million bpd in November. The agency said total U.S. crude oil production began declining in May and has fallen from 9.6 million bpd in April to an estimated 9.2 million bpd in November.
EIA said it “expects U.S. crude oil production declines to continue through September 2016,” when total production is estimated to average 8.5 million bpd, 1.1 million bpd less than the monthly peak reached in April 2015.
Production is forecast to begin increasing in late 2016, returning to an average of 8.7 million bpd in the fourth quarter.
Oil prices are projected to be below $60, limiting onshore drilling activity and well completion totals, “despite continued increases in rig and well productivity and falling drilling and completion costs,” EIA said.
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