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Low oil prices push US production down EIA forecasts Brent to average $60 per barrel this year, $67 in ’16; US production projected to continue falling through early ’16 KRISTEN NELSON Petroleum News
The U.S. Energy Information Administration is forecasting the North Sea Brent crude oil price to average $60 per barrel this year and $67 per barrel in 2016. EIA said in its Short-Term Energy Outlook, issued July 7, that during June Brent averaged $61 per barrel, down $3 per barrel from May, but noted that prices fell some $4 per barrel July 6 in the aftermath of the no vote on the economic package in Greece, as well as on lingering concerns about lower economic growth in China, higher exports from Iran and continuing growth in global petroleum and other liquids inventories.
While a percent drop of that volume is unusual, EIA said, monthly Brent prices have averaged between $55 and $65 per barrel since falling to $48 per barrel in January.
The agency said oil prices have been relatively stable in recent months despite consistent growth in global petroleum and other liquids inventories, up by an estimated 1.9 million barrels per day in June and an average of almost 3 million bpd in April and May, compared to an average build of 800,000 bpd in the second quarter of 2014. EIA said it projects inventory builds will moderate somewhat in the coming months, but expects inventories to remain high compared with previous years.
WTI up $1 from May West Texas Intermediate spot prices are projected to average $5 per barrel less than Brent this year and next.
EIA said WTI averaged $60 per barrel in June, up $1 per barrel from May.
Crude oil inventories at Cushing, Oklahoma, which had increased for 20 consecutive weeks to a record 62.2 million barrels April 17, have decreased by 5.8 million barrels as of June 26, EIA said. “Along with falling Cushing inventories, strong U.S. refinery runs and production outages in Canada have put upward pressure on the price of WTI crude oil,” the agency said.
EIA cautioned that current values of futures and options contracts “continue to suggest high uncertainty in the price outlook.”
US production in decline “While U.S. crude oil production is expected to decline over the months ahead, total output in 2015 is on track to be the highest in 45 years,” EIA Administrator Adam Sieminski said in a statement.
“The forecast decline in U.S. monthly oil production through early 2016 is the result of low oil prices, which pushed oil companies to reduce their investment in drilling that resulted in the lowest number of rigs drilling for oil in nearly five years,” he said.
The agency said U.S. crude oil production averaged 8.2 million bpd last year and is projected to increase to 9.5 million bpd this year and decline to 9.3 million bpd in 2016, a forecast of some 40,000 bpd higher for 2015 and 2016 than in the June Short-Term Energy Outlook, with the increase reflecting upward revisions of estimated Gulf of Mexico production in the second quarter of 2015.
EIA said it estimates that U.S. crude oil production averaged almost 9.6 million bpd in the first half of the year, 300,000 bpd higher than the average production in the fourth quarter of 2014, despite a 60 percent decline in oil-directed rigs since October.
The agency said the most recent estimates, through April 2015, indicate U.S. output of 9.7 million bpd in April, and said it estimates U.S. production began falling in May, down some 50,000 bpd from April, and while total U.S. production increased in April, “the data indicate that onshore production began declining in April.”
First quarter 2016 production is projected to average 9.2 million bpd, with production expected to begin rising in the second quarter, returning to an average of 9.6 million bpd in the fourth quarter.
EIA said 13 Gulf of Mexico projects are scheduled to come online in 2015 and 2016, pushing production in the area from an average of 1.4 million bpd in the fourth quarter to almost 1.7 million bpd in the fourth quarter of 2016, a 17 percent increase.
Unattractive economic returns EIA said expected U.S. crude oil production declines are due to “unattractive economic returns in some areas of both emerging and mature onshore oil production regions, as well as seasonal factors such as anticipated hurricane-related production declines in the Gulf of Mexico.”
Cash flows and capital expenditures are down this year, the agency said, prompting companies “to defer or redirect investment away from marginal exploration and research drilling to focus on core areas of major tight oil plays. Reduced investment has resulted in the lowest count of oil-directed rigs in nearly five years.”
But projected oil prices this year do remain high enough to support development drilling in core areas of the Bakken, Eagle Ford, Niobrara and Permian basins, EIA said, with falling drilling rig and completion costs making rig count increases and resumption of onshore production growth possible next year.
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