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Providing coverage of Alaska and northern Canada's oil and gas industry
June 2021

Vol. 26, No.24 Week of June 13, 2021

EIA says prices to stabilize, then decline

Agency expects crude production to increase as OPEC+ raises production, US tight oil production accelerates, outpacing consumption

Kristen Nelson

Petroleum News

The U.S. Energy Information Administration expects Brent crude oil prices to stabilize mid-year, averaging some $68 per barrel in the third quarter, and then decrease to an average of $60 next year, the agency said in releasing its June Short-Term Energy Outlook June 8.

“In the coming months, we expect global oil production to catch up with the increases we’ve seen in demand in 2021,” said EIA Acting Administrator Stephen Nalley. “U.S. and global oil producers are increasing their production, which should help moderate oil prices that have increased significantly as global economic concerns about the COVID-19 pandemic have begun to ease.”

Global petroleum and liquid fuels consumption is expected to grow 6% this year, to 97.7 million barrels per day, and increase another 4% next year, to 101.3 million bpd, responding to growth in global demand.

U.S. crude oil production is forecast to average 11.8 million bpd in 2022, up 4% from 2020, the agency said, with OPEC production projected to reach 28.7 million bpd in 2022, up 12% from 2020.

Brent prices

Brent crude oil spot prices averaged $68 per barrel in May, EIA said, up $4 from April, with the higher May prices attributed to a continuing decline in global oil inventories, although the pace of decline was slower than in the first four months of the year.

The agency expects global oil production to increase in the coming months to match rising global oil consumption, with the increase in production largely a result of the OPEC+ decision to raise production.

“We expect rising production will end the persistent global oil inventory draws that have occurred for much of the past year and lead to relatively balanced global markets in the second half of 2021,” EIA said, with Brent prices expected to remain near current levels in the third quarter, averaging $68 per barrel.

Continued increase in OPEC+ production and “accelerating growth in U.S. tight oil production,” with other supply growth, is expected to “outpace decelerating growth in global oil consumption and contribute to declining oil prices,” with Brent expected to average $60 per barrel in 2022, EIA said.

Global petroleum and liquid fuels consumption is estimated at 96.2 million bpd in May, up 11.9 million bpd from May 2020, but 3.7 million bpd below the May 2019 level.

Global consumption is forecast to average 97.7 million bpd for 2021, EIA said, up 5.4 million bpd from 2020, and forecast to increase by 3.6 million bpd in 2022 to average 101.3 million bpd.

Crude production

EIA is forecasting OPEC production to average 26.9 million bpd this year and 28.7 million bpd in 2022, increasing from an average of 25 million bpd in April to an average of 28 million bpd in the third quarter, based, the agency said, on its assumption that OPEC will raise production by about 1 million bpd each in June and July in response to rising global demand and “seasonal increases in oil consumption for power generation for some OPEC members.”

Iran’s crude oil production is also expected to increase this year, even with sanctions in place, because the company’s exports are reported up for most of 2020.

U.S. crude oil production averaged 11.2 million bpd in March, up 1.4 million bpd from February, the agency said, with the March increase indicating that production outages from the February winter freeze were temporary and production has come back online quickly.

Prices of West Texas Intermediate are expected to remain above $60 this year, EIA said, and “we expect that producers will drill and complete enough wells to raise 2022 production from 2021 levels,” and estimate 2022 production to average 11.8 million bpd, up from a forecast average of 11.1 million bpd this year.

Natural gas

The Henry Hub spot price of natural gas averaged $2.91 per million British thermal units in May, up from an April average of $2.66. EIA said it expects the price to average $2.92 in the third quarter and $3.07 for the year, up from a 2020 average of $2.03.

The higher price reflects two factors, the agency said: growth in liquefied natural gas exports and rising domestic gas production outside of the power sector.

The Henry Hub spot price is expected to average $2.93 per million Btu next year, “amid slowing growth in LNG exports and rising U.S. natural gas production.”

U.S. consumption of natural gas is expected to average 82.9 billion cubic feet per day this year, down 0.5% from 2020, with the decline in part because of a switch to coal by electric power generators as a result of rising gas prices. Residential and commercial natural gas consumption combined is expected to rise by 1.2 bcf per day from 2020 and industrial consumption to rise by 0.7 bcf, with rising consumption outside of the power sector “from expanding economic activity and colder winter temperatures in 2021 compared with 2020.”

U.S. consumption in 2022 is expected to average 82.8 bcf per day.

There was “a significant weather-related decline in U.S. natural gas production in February,” but production rose by 6 bcf per day in March to 92.3 bcf per day, and dry natural gas production is expected to average 92.9 bcf per day in the second half of the year and 93.9 bcf in 2022.

Oil-directed rotary rig count

“Baker Hughes’ U.S. crude oil rotary rig count, which serves as an indicator of active U.S. crude oil production capacity, reached a low of 172 active rigs on August 14, 2020,” EIA said. The number of U.S. oil-directed rigs has more than doubled since, up by 187 to a total of 359 on May 28.

“The pace at which crude oil producers deploy drilling rigs at any price level is an important driver of crude oil production in U.S. tight oil basins,” the agency said.

EIA said it expects the oil-directed rig count to continue to increase in response to an increase in West Texas Intermediate crude oil prices from less than $50 per barrel in late 2020 to a monthly average of $65 per barrel in May.

“Our models show changes in rig counts typically lag behind changes in the WTI price from between three and six months, and production typically comes online about two months after rig deployment,” the agency said. “Assuming that other factors remain constant, price increases over the past month will likely continue to drive rig deployments through much of the rest of 2021. However, the recent changes in rig counts indicate operators, notably in the Permian, could be deploying fewer rigs at current oil prices than they have previously deployed when oil prices were at similar levels.”

EIA said while U.S. crude oil producers “have some incentive to remain cautious about deploying rigs and increasing production because of overall market uncertainty,” if WTI prices remain near $65 per barrel, as it is forecasting, “prices will continue to provide an incentive for producers to deploy additional rigs and resume production.”

Lower 48 onshore production in May was 8.9 million bpd, EIA said, “near its highest level so far in 2021,” and is expected to reach almost 9.3 million bpd by December, with further increases expected into 2022.

But, EIA said, it has lowered its forecast from that in recent short-term outlooks “because of relatively fewer rig deployments at existing price levels, particularly in the Permian.” It previously forecast production of almost 9.4 million bpd by December.

“Assumptions about the oil price levels at which rigs are deployed are one of the key uncertainties in our forecast,” the agency said.






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