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Providing coverage of Alaska and northern Canada's oil and gas industry
September 2019

Vol. 24, No.36 Week of September 15, 2019

EIA short term: production up, prices down

Record US crude volumes this year and next, agency says, with prices down from last forecast on falling global liquids consumption

Kristen Nelson

Petroleum News

The U.S. Energy Information Administration said in its September Short-Term Energy Outlook, released Sept. 10, that Brent crude oil spot prices averaged $59 per barrel in August, down $5 from July and down $13 per barrel from August 2013, leading EIA to reduce its 2019 Brent forecast to $63 per barrel, down $2 from the August forecast, with Brent expected to average $60 in the fourth quarter.

The 2020 Brent price is now forecast at $62 per barrel, $3 lower than the agency’s August forecast.

“Average spot prices for Brent crude oil in August were slightly below $60 per barrel,” said EIA Administrator Dr. Linda Capuano. “The August price reflects a decrease of nearly $5 per barrel from July and more than $13 per barrel compared with last year. This month’s forecast is that Brent spot prices will average about $60 per barrel during the fourth quarter of this year, followed by prices that will range in the low $60s per barrel through the end of 2020,” she said.

Part of the lower price forecast is due to lower global oil demand growth, which the agency said it has reduced to 900,000 barrels per day this year, down 100,000 bpd from the August forecast. EIA also attributed the drop to “recent global crude oil price fluctuations.”

If 900,000 bpd is the average growth for the year, EIA said it would be the first time since 2011 that growth was less than 1 million bpd.

West Texas Intermediate

EIA said it expects West Texas Intermediate to average $5.50 per barrel less than Brent next year, with the spread between Brent and WTI narrowing. The price spread was $3.60 on Aug. 19, the agency said, the narrowest since March 2018.

“Crude oil prices in the Permian region increased during this period with the addition of two pipelines mid-month that reduced takeaway constraints to the U.S. Gulf Coast,” EIA said. An estimated 670,000 bpd were added by the Cactus II crude oil pipeline and the repurposing of the EPIC Midstream from natural gas liquids to crude added about 400,000 bpd of capacity.

This reduced the need for crude oil to transit through Cushing, “lowering the cost of transportation to refineries and export terminals on the U.S. Gulf Coast,” the agency said, with Cushing stock dropping by 10 million barrels from the third week in July to Aug. 23.

EIA said it expects the spread to widen slightly as regional markets rebalance “and the spread settles closer to the new pipelines’ tariff from the Permian Basin to the Gulf Coast.”

US production

“EIA’s September Short-Term Energy Outlook continues to forecast record U.S. crude oil production in 2019 and 2020,” Capuano said. “Largely driven by growth in the Permian region in Texas and New Mexico, U.S. production has risen above 12 million barrels per day since January 2019. EIA forecasts U.S. oil production to average 12.2 million barrels per day in 2018, before exceeding 13 million barrels per day in 2020,” she said.

The EIA forecast of 12.2 million bpd this year is up by 1.2 million bpd from the 2018 level, the agency said.

The increase slows to a rise of 1 million bpd in 2020, reflecting “relatively flat crude oil price levels and slowing growth in well-level productivity,” the agency said.

Natural gas

“EIA expects Henry Hub spot prices for natural gas to remain below $2.50 per million British thermal units during the fourth quarter of 2019, as U.S. production remains on pace for another record year,” Capuano said. “The September Short-Term Energy Outlook forecasts that prices will rise slightly into 2020, averaging $2.55 per million British thermal units for the year,” she said.

EIA said Henry Hub averaged $2.22 per million Btu in August, down 15 cents from July.

“This summer, prices have declined amid rising natural gas production, despite high levels of both natural gas exports and consumption in the electricity generation sector,” the agency said.

EIS said its assessment is that natural gas production will meet expected demand and export levels at lower price levels, so it has lowered its Henry Hub forecast for 2020 to $2.55 per million Btu, down 20 cents from the August forecast.

U.S. dry natural gas production is forecast to average 91.4 billion cubic feet per day this year, up 8 bcf per day from last year, the agency said, adding that it expects monthly production to grow this year “and then decline slightly during the first quarter of 2020 as the lagged effect of low prices in the second half of 2019 reduces natural gas directed drilling.”

Growth is forecast to resume in the second quarter of 2020, and natural gas production next year is expected to average 93.2 bcf per day.

The agency said growth in liquefied natural gas exports is expected to continue. LNG exports were estimated at 3.9 bcf per day in August and are expected to average 6.4 bcf per day next year. EIA said it “expects that continued growth of LNG exports combined with flattening production will provide support for natural gas prices through the forecast.”






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