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EIA says US crude production is rising
Hit 2-year low in May of 10 million barrels per day; July average 11 million bpd; estimated to be at 11.2 million bpd in September Kristen Nelson Petroleum News
U.S crude oil production averaged 11 million barrels per day in July, the most recent month for which historic data is available, the U.S. Energy Information Administration said Oct. 6 in its Short-Term Energy Outlook.
September, for which only an estimate is currently available, is expected to be up by some 200,000 bpd to 11.2 million bpd, “up 1.2 million barrels per day from May’s two-and-a-half year low,” EIA Administrator Dr. Linda Capuano said in a statement accompanying the outlook release.
“Production has increased as tight oil operators bring wells back online in response to rising prices,” she said. “However, we expect U.S. production to generally decline through mid-2021 as production from new drilling activity will not be large enough to offset declines from existing wells.”
EIA said U.S. production is expected to decline to an average of 11 million bpd in the second quarter of 2021, with drilling activity expected to rise later in 2021, contributing to U.S. crude production returning to an average of 11.2 million bpd by the fourth quarter next year.
The agency expects U.S. crude oil production to fall from an annual average of 12.2 million bpd in 2019 to 11.5 million bpd this year and 11.1 million bpd in 2021.
Brent drops in September “As global oil demand growth slowed in the third quarter, daily Brent crude oil prices decreased $4 per barrel from August to an average $41 per barrel in September,” Capuano said.
EIA said the decrease in oil prices “coincided with slowing increases in global oil demand,” with month-over-month consumption rising by 1 million bpd on average in August and September, compared to an average increase of 4.1 million bpd from May through July.
“EIA estimates that global inventories built at a rate of 7.3 million barrels per day in the second quarter but drew at a rate of 3.1 million barrels per day in the third quarter,” Capuano said. “Despite this change, EIA expects that high inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices, resulting in an average monthly Brent spot price of $42 per barrel in the fourth quarter,” she said.
There was heightened price volatility in September, with Brent falling to less than $40 per barrel before beginning to stabilize from mid-September through Oct. 1, with some initial price decline a result of announcements from Libya that the export blockade would be lifted. The blockage had reduced production from 800,000 bpd in January to less than 100,000 bpd in August. EIA said Libya is not part of the current production agreement among members of the Organization of the Petroleum Exporting Countries and partners, so an increase in Libyan production “could significantly affect crude oil supply and inventories in the coming months.”
EIA also said it estimates the rate of global oil demand growth slowed in August and September compared with initial recovery from June through July. And recent increases in COVID-19 cases in some countries have resulted in renewed restrictions, which could also contribute to downward pressure on oil prices.
Brent v WTI EIA said there has been a reduction in the Brent-West Texas Intermediate futures price spread, which closed at a four-month low of 48 cents per barrel on Sept. 30.
North Sea production has not declined while U.S. production has, “likely putting downward price pressure on Brent relative to WTI,” the agency said.
Another factor is a slower demand recovery in the second quarter than EIA estimated in September, it said, allowing a higher share of crude oil demand from importers in Asia to be met from a combination of inventories and rising OPEC+ production, a trend which the agency said it expects to continue into 2021, “which could reduce export demand for U.S. crude oil from the most distant refining markets in Asia.”
Then there is oil export infrastructure expansion along the U.S. Gulf Coast, improving efficiency and lowering U.S. crude oil export costs.
Based on these combined factors, EIA said it expects the Brent-WTI spread to average $1.50 per barrel in the fourth quarter and $2.35 in 2021, down $1.50 and $1.65, respectively, from the agency’s September forecast.
Natural gas The Henry Hub natural gas spot price increased 53 cents from July to August and then “decreased 38 cents to an average $1.92 per million British thermal units in September,” Capuano said. “Lower prices reflected high inventory levels and relatively low demand for U.S. LNG exports and hurricane-related activity in the Gulf of Mexico,” she said.
EIA said lower natural gas spot prices reflected declining demand from the U.S. electric power sector due to lower-than-normal temperatures in the second half of September, in addition to the LNG and hurricane factors.
The agency said it expects rising domestic demand for natural gas and rising LNG export demand, and reduced production, will cause spot prices to rise to a monthly average of $3.38 per million Btu in January. Average monthly spot prices are expected to stay above $3 through 2021, averaging $3.13, EIA said, up from a forecast of $2.07 per million Btu in 2020.
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