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EIA: US crude production rose in August
Agency expects rise to continue through September, then decline slightly as new drilling won’t offset declines from existing wells Kristen Nelson Petroleum News
U.S. crude oil production has been rising, the U.S. Energy Information Administration said Sept. 9 in its Short-Term Energy Outlook, with August production estimated at 10.8 million barrels per day.
In the first quarter production averaged 12.7 million bpd, then dropped to 10 million bpd in May.
“We expect U.S. crude oil production will rise to 11.2 million barrels per day in September, however, after September, EIA forecasts a general decline through May 2021 because new drilling activity is not forecast to offset production declines from existing wells,” EIA Administrator Dr. Linda Capuano said in a statement accompanying the outlook release.
The agency said production increased because tight oil operators brought wells back into production as crude prices rose, with the August production increase occurring despite Gulf of Mexico shut-ins as a result of Hurricane Laura.
EIA said recently released data show June U.S. crude oil production was 10.4 million bpd, 700,000 bpd more than the agency estimated in August, with the higher-than-expected production level indicating a faster return of curtailed production than the agency previously assumed.
U.S. crude production is expected to average just under 11 million bpd for the first half of 2021, then, as drilling activity rises, production is expected to average 11.3 million bpd in the fourth quarter of 2021.
EIA cautioned, as it has with recent outlooks, that there are “heightened levels of uncertainty because mitigation and reopening efforts” related to COVID-19 are evolving, with reduced economic activity causing changes in energy demand and supply patterns.
This outlook “assumes U.S. gross domestic product declined by 4.6% in the first half of 2020 from the same period a year ago and will rise beginning in the third quarter of 2020, with year-over-year growth of 3.1% in 2021,” the agency said.
Crude oil prices “Daily Brent crude oil prices increased for the fourth consecutive month, averaging $45 per barrel in August. EIA expects Brent crude prices to average $44 per barrel during the fourth quarter of 2020 and rise to an average of $49 per barrel in 2021 as markets become more balanced,” Capuano said.
The August average for Brent crude is an increase of $2 per barrel from the July average, and Brent August prices were up by $26 per barrel from “the multiyear low monthly average price in April,” EIA said.
The agency said it estimates that global oil markets have shifted from the second quarter, when liquid fuels inventories were building at a rate of 7.2 million barrels per day, to a third quarter situation with inventories being drawn at some 3.7 million bpd, and said it expects inventory draws of 3.1 million bpd in the fourth quarter before markets become relatively balanced in 2021, with forecast draws of 300,000 bpd.
“Despite expected inventory draws in the coming months, EIA expects high inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices,” the agency said.
Natural gas “Henry Hub natural gas spot prices averaged $2.30 per million British thermal units in August, up 53 cents from July,” Capuano said. “Higher prices reflect warmer-than-normal temperatures in August and higher demand for U.S. LNG exports amid declining U.S. natural gas production.”
EIA said the higher spot prices reflect rising demand from the U.S. electric power sector and rising demand for U.S. liquefied natural gas exports amid decline U.S. production.
By January, EIA expects to see Henry Hub spot prices average $3.40 per million Btu pushed up by rising domestic and export demand combined with reduced production.
U.S. LNG exports are estimated to have averaged 3.7 billion cubic feet per day in August, up 19% from July, and are forecast to return to pre-COVID levels by November and average more than 9 bcf per day from December through February.
Global production, consumption “Global liquid fuels production in August was down 9.7 million barrels per day compared with a year ago,” Capuano said. “The decline reflects the voluntary production cuts by OPEC producers and partner countries and reduction in drilling activity and production in the United States resulting from low oil prices,” she said.
EIA said it expects global consumption of petroleum and other liquid fuels to average 99.6 million bpd in 2021, down 600,000 bpd from its August forecast, with the revising primarily reflecting lower expected growth in China.
“The revised petroleum consumption reflects a more plausible assessment of the country’s energy intensity of economic growth,” the agency said.
On jet fuel usage EIA noted that data they examined indicated demand for jet fuel in the U.S. is rising faster than in most other major aviation markets, based on commercial passenger flights, which accounted for 73% of U.S. jet fuel consumption in January 2020. The agency said it is projecting that U.S. jet fuel demand will rise from 1.1 million bpd in August to 1.5 million bpd in December, amounts which EIA said are 59% and 85%, respectively of the amounts in August and December of 2019.
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