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Brent up $2 from May, 5th consecutive gain EIA forecasts average $44 this year, $52 in 2017; June price averaged $48 per barrel; US crude production continues to decline KRISTEN NELSON For Petroleum News
U.S. crude oil production continues to drop, the U.S. Energy Information Administration said July 12 in its Short-Term Energy Outlook. The average was 9.4 million barrels per day in 2015, EIA said, and its forecast for 2016 is 8.6 million bpd, dropping to 8.2 million bpd in 2017.
The agency’s estimate for June is 8.6 million bpd, down 200,000 bpd from May and down almost 1.1 million bpd from the April 2015 9.7 million bpd level.
North Sea Brent crude oil spot prices averaged $48 per barrel in June, up $2 per barrel from May and the fifth consecutive monthly increase, EIA said, since Brent reached a 12-year low of $31 per barrel in January.
West Texas Intermediate crude oil prices are forecast to stay the same as Brent this year and next, EIA said.
Worldwide production Organization of the Petroleum Exporting Countries’ production averaged 31.8 million bpd per day in 2016, up 800,000 bpd from 2014, led by rising production in Iraq and Saudi Arabia, EIA said, and OPEC production is forecast to rise by 800,000 bpd this year, with most of that increase coming from Iran. OPEC is forecast to add an additional 500,000 bpd in 2017, and EIA said that forecast does not assume “a collaborative production cut among OPEC members and other producers in the forecast period, as major OPEC producers are expected to continue their strategy of maintaining market share.”
Non-OPEC production grew by 1.6 million bpd last year, more than half of that increase coming from North America, and EIA said it expects non-OPEC production to decline by 600,000 bpd this year and by a further 200,000 bpd in 2017.
“Changes in non-OPEC production are largely driven by changes in U.S. tight oil production, which has high production decline rates and relatively short investment horizons, making it among the most price-sensitive oil production globally,” EIA said.
U.S. liquid fuels production is forecast to drop by 500,000 bpd this year and by 100,000 bpd next year, with declining onshore crude oil production partially offset by expected growth in hydrocarbon gas liquids production, Gulf of Mexico crude oil production and liquids biofuels production, the agency said.
Crude oil prices June’s average North Sea Brent crude oil price was $48, up $2 per barrel from May, and “the highest monthly average for Brent since October 2015,” EIA said. It was also the fifth consecutive increase in the Brent monthly average, “the longest such stretch since May through September 2013.”
The agency said that while the average price for June was up, daily prices at the end of the month were slightly lower, noting that significant global supply outages at the beginning of the month contributed to the price rise, while unease over the June 23 vote in the United Kingdom to exit the European Union and easing of fire-related supply disruptions in Canada contributed to the falling prices.
EIA said average West Texas Intermediate prices are expected to be the same as Brent this year and next, “based on the assumption of competition between the two crudes in the U.S. Gulf Coast refinery market, because transportation price differentials to move the crudes from their respective pricing points to that market are similar.”
US crude production U.S. crude oil production is projected to continue declining in most Lower 48 onshore production regions through 2017, EIA said, with expectation of reduced cash flows this year and next prompting many companies to scale back investment and defer major new undertakings until there is a sustained price recovery.
The agency also said the prospect of tighter lending conditions is likely to limit capital availability for many small producers, “giving rise to distressed asset sales and consolidation of acreage holdings by firms that are more financially sound.”
Onshore drilling activity and well completions are expected to be limited by the current price outlook, EIA said, with low rig counts expected to limit production through 2017.
U.S. crude oil production was 9.2 million bpd in the first quarter of the year, and EIA said it is projecting a decline to an average of 8.1 million bpd in the third quarter of next year, 1.6 million bpd below the April 2015 level, the highest monthly production since April 1971. Production is expected to be relatively flat from October 2016 through July 2017, averaging 8.2 million bpd.
Natural gas Henry Hub spot prices rose in June, averaging $2.59 per million British thermal units for the month, EIA said, the highest monthly average since last September, due to a decrease in production and an increase in demand for natural gas for electricity generation.
The agency said it projects an increase in natural gas prices will continue through 2016, “and will contribute to a reversal in production declines in the second half of the year.”
Gross exports are expected in grow and net imports of natural gas to decline, with the United States expected to become a net exporter of natural gas in the second half of 2017.
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