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February 2020

Vol. 25, No.07 Week of February 16, 2020

EIA drops 2020 Brent forecast to $61

Prices expected to be below $60 in first half of year; US crude oil production growth to slow, averaging 13.2 million bpd this year

Kristen Nelson

Petroleum News

In its Feb. 11 Short-Term Energy Outlook the U.S. Energy Information Administration said it expects global petroleum and liquid fuels demand to average 100.3 million barrels per day in the first quarter of the year, 900,000 bpd less than its January forecast. The agency said the change reflects both the coronavirus and warmer than normal January temperatures in the northern hemisphere.

Brent crude oil spot prices averaged $64 per barrel in January, EIA said, down $4 per barrel from December, with Brent prices falling steadily in January and into the first week of February, closing on Feb. 4 below $54 per barrel, the lowest price since December 2018.

“EIA expects that travel restrictions in response to the coronavirus, along with the related economic showdown in China, will reduce petroleum demand and keep crude oil prices below $60 per barrel through the first half of this year despite current disruptions to crude oil supply,” said EIA Administrator Dr. Linda Capuano.

“EIA reduced its forecast for global oil consumption growth through 2020 to 1.0 million barrels per day in the February Short-Term Energy Outlook,” she said. “Changes in the forecast mostly result from the coronavirus and its effects on oil consumption in China.”

Expectations from OPEC

EIA said it expects the Organization of the Petroleum Exporting Countries will reduce crude oil production by 500,000 bpd from March through May because of lower expected global demand. The agency said this reduction is in addition to cuts announced in December. EIA is now forecasting OPEC crude production to average 28.9 million bpd in 2020, down 300,000 bpd from the January forecast. The lower forecast reflects Libya’s crude oil production outages in the first quarter.

EIA said that it assumes OPEC “will limit production through all of 2020 and 2021 to target relatively balanced global oil markets.”

Brent crude

EIA said several events in January contributed to uncertainty in crude oil markets and the world economy.

“Early in the month, geopolitical developments drove oil prices,” the agency said, and Brent closed at $70 on Jan. 6, the highest level since May, “following U.S. military operations in Iraq.”

The agency said it now expects Brent to be $7 per barrel lower than previously forecast during the first six months of the year, with prices $1 per barrel lower than previously forecast in the second half of the year, averaging $58 per barrel in the first half of the year and $64 per barrel in the second half, rising to average $68 per barrel in 2021.

Crude prices fell as tensions in the Middle East deescalated and concerns over oil supply disruptions faded and those price declines accelerated with economic concerns over the coronavirus outbreak, with oil prices declining for five days starting Jan. 21. Demand was further reduced by warmer-than-normal northern hemisphere temperatures in January, which reduced heating oil consumption.

EIA said that while the magnitude and duration of effects of the coronavirus are uncertain, it is reducing estimates of Chinese and global oil consumption for 2020 as a result. Travel restrictions in China are disrupting petroleum demand there and in other countries. EIA said it is assuming effects of the travel restrictions will be most severe in China from February through April and is reducing its expectation of liquids fuels consumption in China by 400,000 bpd, an average of 14.8 million bpd, during that period.

US crude, natural gas

“The current outlook for U.S. crude oil production reflects slowing growth, with production expected to average 13.2 million barrels per day in 2020, up 8% from 2019, and 13.6 million barrels per day in 2021, a 3% increase from 2020,” Capuano said.

EIA said the 2020 forecast is an increase of 1 million bpd from 2019, with most of that increase and the increase forecast for 2021 coming from the Permian region of Texas and New Mexico.

EIA said it expects a decline in U.S. natural gas production.

“Because of low natural gas prices, EIA expects natural gas production to decline somewhat on a monthly basis through 2020, with dry gas production falling from 95 billion cubic feet per day in January to between 92 billion cubic feet per day and 93 (billion) cubic feet per day in December,” Capuano said.

EIA said the Henry Hub natural gas spot price averaged $2.02 per million British thermal units in January as warm weather contributed to below-average inventory withdrawals, putting downward pressure on natural gas prices. The price stood at $1.86 on Feb. 6, and EIA said it expects prices to remain below $2 in February and March.

U.S. dry natural gas production set a record in 2019, averaging 92.1 billion cubic feet per day, EIA said, and while it forecast production averaging 94.2 bcf per day in 2020, EIA said it expects monthly production to generally fall this year, from an estimated 95.4 bcf per day in January to 92.5 bcf in December.

“The falling production mostly occurs in the Appalachian and Permian regions,” EIA said, with low natural gas prices in Appalachia discouraging natural gas directed drilling and low prices in the Permian expected to reduce associated gas output from oil-directed wells.

In 2021, EIA said, it expects dry natural gas production to stabilize near December 2020 levels at an annual average of 92.6 bcf per day, “a 2% decline from 2020, which would be the first decline in annual average natural gas production since 2016.”






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