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EIA forecasts Brent to average $65 in 2020
July price averaged $64 per barrel, down $10 from last July; expected to average $64 for rest of year on relatively balanced market Kristen Nelson Petoleum News
The U.S. Energy Information Administration’s August Short-Term Energy Outlook, released Aug. 6, says Brent crude oil spot prices averaged $64 per barrel in July, almost unchanged from June, but $10 lower than the price in July 2018. The agency forecasts an average Brent spot price of $64 for the second half of the year and $65 in 2020.
“Despite the potential for supply disruptions around the world, EIA forecasts that Brent crude oil spot prices will remain relatively flat through the end of 2020, as EIA sees oil markets as being in relative balance next year,” EIA Administrator Dr. Linda Capuano said in a statement accompanying the outlook release.
EIA is forecasting West Texas Intermediate to average $5.50 per barrel less than Brent during the fourth quarter and in 2020, narrowing from a spread of $6.60 in July. The agency said the narrowing spread reflects its assumption “that crude oil pipeline transportation constraints from the Permian Basin to refineries and export terminals on the U.S. Gulf Coast will ease in the coming months.” In its July outlook EIA had forecast a $4 spread for 2020, and the agency said the change reflects “revised assumptions about the marginal cost of moving crude oil via pipeline from Cushing, Oklahoma, to the Gulf Coast.”
Brent and WTI decline by more than 7% Aug. 1, EIA said, “following the U.S. announcement of new tariffs on China, a large decline for a single day.” In July Brent traded in a $6.36 per barrel range, the second narrowest range in 2019, and reflecting, EIA said, “offsetting upward and downward oil price pressures.”
The agency said continuing Middle East tensions were putting upward pressure on prices because of the risk of supply disruptions, while on the downward side, the International Monetary Fund has lowered its estimates for global economic growth this year and next, while China’s 6.2% gross domestic product growth for the second quarter was the lowest rate since estimates began in 1992.
“The combination of oil supply disruption risk and lower economic growth expectations creates uncertainty in the pace of global oil inventory withdrawals and prices,” the agency said, and its flat crude oil price forecast (increasing to $65 by the fourth quarter and remaining there throughout 2020) “recognizes that upside and downside price risks and EIA’s forecast for global inventory growth are currently balanced.” EIA said that with risk factor uncertainty, “prices could break out of the mid-$60/b range if the supply or demand concerns materialize in the coming months.”
US crude production EIA said it estimates that U.S. crude oil production averaged 11.7 million barrels per day in July, down 300,000 bpd from June, with the decline mostly in the federal Gulf of Mexico, where Hurricane Barry caused platforms to be shut for several days, a reduction the agency estimates at more than 300,000 bpd. Those declines, EIA said, were partially offset by Lower 48 onshore production, mostly tight oil, which rose by more than 100,000 bpd.
“EIA continues to forecast record U.S. crude oil production in the August outlook, which projects U.S. production to exceed an average of 13 million barrels per day in 2020. If the forecast holds, U.S. oil production will have doubled since 2012,” Capuano said.
The agency is forecasting U.S. crude oil production to average 12.3 million bpd this year and 13.3 million bpd in 2020, “both of which would be record levels.”
Natural gas The Henry Hub natural gas spot price averaged $2.37 per million British thermal units in July, EIA said, down 3 cents from June. By the end of July, spot prices had fallen below $2.30 and based on that price movement and its forecast of continued strong growth in domestic natural gas production, EIA has lowered its forecast for the second half of the year to an average of $2.36 per million Btu, down from a forecast of $2.50 in July. The 2020 spot price is forecast to be $2.75 per million Btu, EIA said, based on its natural gas production models which “indicate that rising prices are required in the coming quarters to bring supply into balance with rising domestic and export demand in 2020.”
The agency said it is forecasting U.S. dry natural gas production of 91 billion cubic feet per day this year, up 7.6 bcf from 2018, and expects monthly average natural gas production to grow in late 2019 “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 expected to resume in the second quarter, with natural gas production in 2020 averaging 92.5 bcf per day.
EIA said the average monthly U.S. natural gas futures price at Henry Hub has decreased every month since November 2018, with international natural gas prices falling by even more over the period, driven by increased liquefied natural gas supplies and slowing demand. The natural gas spot price at the U.K.’s National Balancing Point fell 49% from the beginning of 2019 to Aug. 1 and prices for the Japan/Korea Marker fell 52% during the same period. EIA said decreasing international gas prices and fluctuating exchange rates have narrowed the price spreads between Henry Hub and NBP by 63% and between Henry Hub and JKM by 65% since the start of the year and said it “expects LNG exports to continue to rise in 2019 and 2020 as new liquefaction plants come online. However, the narrowing price spreads may challenge the competitiveness of U.S. LNG exporters after adding the cost of liquefaction and transport.”
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