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Brent to average $43 this year, $52 in ’17 EIA forecasts US crude production at 8.9 million bpd this year, down from 9.4 million in ’15; expected to drop to 8.8 million in ’17 KRISTEN NELSON Petroleum News
The U.S. Energy Information Administration expects U.S. crude oil production to average 8.9 million barrels per day this year, down from 9.4 million bpd last year. The agency said in its Dec. 6 Short-Term Energy Outlook that 2017 production is expected to drop further to 8.8 million bpd.
But there is a caveat, said EIA Administrator Adam Sieminski.
“U.S. monthly oil production could increase more quickly next year if OPEC’s recent decision to trim its output pushes the price of oil above $50 a barrel, which would encourage more investment in U.S. regions that have tight oil production.”
The agency’s oil price expectations are that Brent will average $43 per barrel this year and $52 per barrel in 2017, with West Texas Intermediate forecast to average about $1 less than Brent in 2017.
EIA increased its Brent oil price forecast by $1 per barrel from November and said both Brent and WTI prices are expected to remain close to $50 per barrel in the first half of 2017, and to end the year at about $55 per barrel.
OPEC Members of the Organization of the Petroleum Exporting Countries announced a framework for supply reductions at the organization’s Nov. 30 meeting and several non-OPEC members also said they would freeze or reduce production. EIA said that the extent to which those plans would be carried out and actually reduce supply below levels which would have occurred anyway is unclear.
If the agreement contributes to prices rising above $50 per barrel in the coming months, “it could encourage a return to supply growth in U.S. tight oil more quickly than currently expected,” EIA said. Prices near $50 per barrel have resulted in increasing Permian basin investment by some oil companies and prices above $50 “could contribute to supply growth in other U.S. tight oil regions and in other non-OPEC producing countries that do not participate in the OPEC-led supply reductions.”
Positive growth EIA said if there is continuing global supply growth in 2017 that may postpone withdrawals from global inventory until 2018. The agency said inventory build is expected to average 800,000 bpd in the first half of 2017 and to average 400,000 bpd for all of 2017.
Global economic data have been more positive than previous expectations “and increases in oil demand growth could help to support prices in the coming quarters,” EIA said.
U.S. oil production has been “more resilient in the current oil price environment” than expected, and this has been reflected in improving financial conditions for oil companies.
“Improved profits could encourage oil producers to increase capital expenditures and expand production in 2017 and beyond, especially if oil prices increase,” the agency said.
EIA said a group of 91 publicly traded global oil companies in the third quarter of this year reported the first quarterly upstream profits since the fourth quarter of 2014, collectively earning almost $2.3 billion with Brent averaging $47 per barrel, compared to the third quarter of 2015 when the group lost $54.1 billion at Brent prices averaging $51.
Many companies have written down the value of their assets since the fourth quarter of 2014, reducing earnings in the quarter in which the write-down was taken, the agency said, and the increased earnings in the third quarter of this year are partly attributable to a reduction in asset write-downs, which declined 80 percent year over year, and partially attributable to reductions in operating expenses which were greater than declines in revenue.
Natural gas The Henry Hub spot price for natural gas increased by 60 cents per million British thermal units from Nov. 1 and settled at $3.51 per million Btu Dec. 1, a drop of 43 cents from the October average.
Natural gas marketed production is forecast to average 77.5 billion cubic feet per day this year, EIA said, down 1.3 bcf per day from the 2015 level, and “the first annual production decline since 2005.” The agency said natural gas production is forecast to increase next year to 80 bcf per day, up 2.5 bcf per day from the 2016 level.
Increases in the Henry Hub spot price were driven by growing domestic natural gas consumption coupled with higher pipeline exports to Mexico and natural gas exports.
The 2016 average for Henry Hub is forecast to be $2.49 per million Btu, rising to $3.27 in 2017.
“U.S. natural gas inventories were at their highest level ever at the beginning of the current heating season, but stronger gas demand this winter and increased exports are expected to reduce natural gas inventories to more normal levels by the end of winter in late March,” Sieminski said.
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