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Brent crude oil prices continue to drop EIA projects $38/barrel this year, $50 in 2017; WTI forecast to average same as Brent; US production expected to drop this year KRISTEN NELSON Petroleum News
Crude oil prices are continuing to drop, the U.S. Energy Information Administration said Feb. 9 in its Short-Term Energy Outlook, with North Sea Brent averaging $31 per barrel in January, down $7 from December - the lowest monthly average since December 2003.
EIA said Brent is forecast to average $38 per barrel this year and $50 in 2017, with West Texas Intermediate expected to average the same as Brent.
In 2015 Brent averaged $52 per barrel, down $47 a barrel from a 2014 average of $99 per barrel.
“Continuing increases in global oil inventories are expected to keep oil prices under $40 a barrel through August,” EIA Administrator Adam Sieminski said in a statement.
The agency said global growth in liquids inventories averaged 1.8 million barrels per day in 2015 and continues to grow, with growth forecast at 1.4 million bpd in the first quarter this year. Uncertainty over future global demand growth “continued to put downward pressure on oil prices during January,” EIA said.
Inventories are an issue in the U.S., Sieminski said: “U.S. commercial inventories of crude oil reached nearly 503 million barrels at the end of January, marking the first time that oil stocks topped 500 million barrels since 1930.” He said inventory builds are expected to continue “with U.S. crude stocks expected to peak this year at 517 million barrels in April.”
Brent and WTI The Brent forecast increase to $50 per barrel in 2017 is expected to be concentrated later in the year.
“At that point, the market is expected to experience small inventory draws, with the possibility of further draws beyond the forecast period,” the agency said, with Brent prices forecast to average $56 per barrel in the fourth quarter of 2017.
West Texas Intermediate, forecast to average $2 and $3 below Brent in 2016 and 2017 in the agency’s January outlook, is now forecast to average the same as Brent in both years.
EIA said the price parity “is based on the assumption of competition between the two crudes in the U.S. Gulf Coast refinery market, as transportation differentials are similar to move the crudes from their respective pricing points to that market.”
US production dropping EIA said U.S. crude oil production averaged some 9.4 million bpd in 2015, is forecast to average 8.7 million bpd this year and 8.5 million bpd in 2017, and is estimated to have dropped 70,000 bpd in January from the December level of 9.2 million bpd.
Petroleum and other liquid fuels production outside the Organization of the Petroleum Exporting Countries grew by 1.4 million bpd in 2015, mainly in North America.
Non-OPEC production is forecast to decline by 600,000 bpd this year, the first decline since 2008, the agency said, with most of that decline expected to be in the U.S. Non-OPEC production is forecast to decline by 200,000 bpd in 2017.
“Changes in non-OPEC production are driven by changes in U.S. tight oil production, which is characterized by high decline rates and relatively short investment horizons, which make it among the most price-sensitive globally,” the agency said. U.S. liquid fuels production is forecast to decline by some 500,000 bpd this year, “as low oil prices contribute to drilling rig counts falling below levels required to sustain current production,” EIA said. U.S. production is forecast to be relatively flat in 2017.
Outside the U.S., some non-OPEC countries are expected to see continuing production increases, including Canada, where several oil sands begin production at projects sanctioned before the drop in oil prices.
Capital, technology With WTI prices below $40 per barrel and projected to remain there through the middle of the year, EIA said it expects most Lower 48 onshore oil production to decline.
“The expectation of reduced cash flows in 2016 and 2017 has prompted many companies to scale back investment programs, deferring major new undertakings until a sustained price recovery occurs,” the agency said, adding that the prospect of higher interest rates and tighter lending conditions “will likely limit the availability of capital for many smaller producers, giving rise to distressed asset sales and consolidation of acreage holdings by more financially sound firms.”
Lower 48 onshore drilling will focus in core areas of major oil plays, EIA said, noting that rig counts have “largely stabilized in the core counties of the Bakken, Eagle Ford, Niobrara, and Permian,” where falling costs, and ongoing technological and process improvements “are anticipated to lead to faster rates of well completions and less-rapid production declines relative to other Lower 48 onshore areas.”
EIA said total U.S. production is expected to level off in 2016, with onshore Lower 48 production continuing to fall into the third quarter of 2017, while “productivity improvements, lower breakeven costs, and anticipated oil price increases are expected to end more than two years of declines in Lower 48 onshore production before the end of 2017.”
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