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Last Updated: December 21, 2017
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Market Watch

Headline crude prices for the week beginning 18 December 2017 – Brent: US$63/b; WTI: US$57/b

  • Suspension of a planned strike of Nigeria’s Pengassan oil union eased prices back, although talks deferred to January could still break down.
  • The hairline crack that prompted the shutdown of the Forties Pipeline System has not propagated, and repairs should be completed by the New Year, also easing speculative pressure on prices.
  • OPEC announced that it expects the market to be balanced by late 2018, underscoring that there will be no more extensions to its current supply deal.
  • The US EIA sees crude output at major American shale plays reaching 6.41 mmb/d a day in January
  • American domestic oil inventories slid by 5.2 million barrels last week, exceeding a forecast of 3.15 million barrels – an indication of healthy demand even with rising supply.
  • Active US rig sites fell by a net one last week; loss of 4 oil rigs offset a 3-site gain in gas rigs. Canadian rig count jumped by 19, all oil additions.
  • European gas prices spiked up after fire broke out at the Baumgarten gas hub in Austria, after jumping on the closure of the UK Forties pipeline system. Asian LNG spot prices followed suit, jumping to US$10.50 mmBtu for January deliveries.
  • Saudi Arabia will raise its capital spending to US$414 billion through 2027. Some US$134 billion will be spent on drilling/well services, US$78 billion on maintaining reserves and the remainder focused on expanding infrastructure and new businesses.
  • Crude price outlook: As supply threats abate and the market prepares for the long year-end break, no dramatic movement is expected in prices. Prices should drift down to US$62/b for Brent and US$56/b for WTI – a good way to start 2018.


Headlines of the week

Upstream

  • Repairs at the Forties Pipeline System is expected to take up to four weeks to complete, as Ineos declared force majeure on Forties deliveries.
  • Aker BP has unveiled plans to spend US$1 billion to develop the Ærfugl, Valhall Flank West and Skogul fields in Norway.
  • Interest in the UK North Sea continues with a new player on the scene – Spirit Energy, a joint venture between Centrica and Bayerngas Norge.
  • Lebanon has approved a consortium formed by Total, Eni and Russia’s Novatek to begin exploring for oil and gas in its waters, where the country hopes to extend the streak of big eastern Mediterranean discoveries.
  • ADNOC has been polling its Asian buyers on whether it should maintain its current system of retroactive pricing, or change to forward pricing as part of a major review of Abu Dhabi’s monthly crude pricing mechanism.
  • Fresh off its onshore success Uganda and Kenya, Tullow Oil is now adding South Sudan as a market of interest, owing to similar geology.

Downstream

  • A new processing unit has been added to Iraq’s Kirkuk refinery, increasing capacity to 56 kb/d, part of a push to have more Kirkuk crude processed locally instead of exported by pipeline.
  • PDVSA’s woes means that it is losing grip on a refining system created in its own backyard, pulling out of the Cienfuegos refinery in Cuba. PDVSA’s 49% stake in Cienfuegos, supplied by Venezuelan crude, has been transferred to the Cuban government as debt settlement.
  • BP is emerging as one of the early leaders in Mexico’s deregulated downstream, opening its 100th retail station last week and on target to achieve a network of 500 by the end of 2018.

Natural Gas/LNG

  • First gas has been produced from Eni’s Zohr field in Egypt less than two and a half years after discovery, transforming Egypt from a hungry net importer to a potentially powerful exporter.
  • After acquiring a 25% stake in the gas-rich Area 4 block in Mozambique from Eni, ExxonMobil confirms that it will now lead midstream operations and all liquefaction (plus related) facilities at Area 4. Eni, in return, will take the lead on all upstream operations and Coral FLNG.
  • Indonesia is aiming to sign off on final development of the Abadi LNG project in mid-2018, pushing for a start-up as early as 2023.
  • Rosneft has gained the licences to develop two major offshore gas fields in the country. With total reserves of 180 bcm, Rosneft holds the Patao and Mejillones licences for the next 30 years.

Corporate

Petrobras and ExxonMobil has formed a strategic alliance, aimed to cooperating on global energy projects across exploration, production and chemicals.

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EIA expects U.S. crude oil production to remain relatively flat through 2021

In the U.S. Energy Information Administration’s (EIA) November Short-Term Energy Outlook (STEO), EIA forecasts that U.S. crude oil production will remain near its current level through the end of 2021.

A record 12.9 million barrels per day (b/d) of crude oil was produced in the United States in November 2019 and was at 12.7 million b/d in March 2020, when the President declared a national emergency concerning the COVID-19 outbreak. Crude oil production then fell to 10.0 million b/d in May 2020, the lowest level since January 2018.

By August, the latest monthly data available in EIA’s series, production of crude oil had risen to 10.6 million b/d in the United States, and the U.S. benchmark price of West Texas Intermediate (WTI) crude oil had increased from a monthly average of $17 per barrel (b) in April to $42/b in August. EIA forecasts that the WTI price will average $43/b in the first half of 2021, up from our forecast of $40/b during the second half of 2020.

The U.S. crude oil production forecast reflects EIA’s expectations that annual global petroleum demand will not recover to pre-pandemic levels (101.5 million b/d in 2019) through at least 2021. EIA forecasts that global consumption of petroleum will average 92.9 million b/d in 2020 and 98.8 million b/d in 2021.

The gradual recovery in global demand for petroleum contributes to EIA’s forecast of higher crude oil prices in 2021. EIA expects that the Brent crude oil price will increase from its 2020 average of $41/b to $47/b in 2021.

EIA’s crude oil price forecast depends on many factors, especially changes in global production of crude oil. As of early November, members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) were considering plans to keep production at current levels, which could result in higher crude oil prices. OPEC+ had previously planned to ease production cuts in January 2021.

Other factors could result in lower-than-forecast prices, especially a slower recovery in global petroleum demand. As COVID-19 cases continue to increase, some parts of the United States are adding restrictions such as curfews and limitations on gatherings and some European countries are re-instituting lockdown measures.

EIA recently published a more detailed discussion of U.S. crude oil production in This Week in Petroleum.

November, 19 2020
OPEC members' net oil export revenue in 2020 expected to drop to lowest level since 2002

The U.S. Energy Information Administration (EIA) forecasts that members of the Organization of the Petroleum Exporting Countries (OPEC) will earn about $323 billion in net oil export revenues in 2020. If realized, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues.

Crude oil prices have fallen as a result of lower global demand for petroleum products because of responses to COVID-19. Export volumes have also decreased under OPEC agreements limiting crude oil output that were made in response to low crude oil prices and record-high production disruptions in Libya, Iran, and to a lesser extent, Venezuela.

OPEC earned an estimated $595 billion in net oil export revenues in 2019, less than half of the estimated record high of $1.2 trillion, which was earned in 2012. Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programs, and support public services. EIA expects a decline in net oil export revenue for OPEC in 2020 because of continued voluntary curtailments and low crude oil prices.

The benchmark Brent crude oil spot price fell from an annual average of $71 per barrel (b) in 2018 to $64/b in 2019. EIA expects Brent to average $41/b in 2020, based on forecasts in EIA’s October 2020 Short-Term Energy Outlook (STEO). OPEC petroleum production averaged 36.6 million barrels per day (b/d) in 2018 and fell to 34.5 million b/d in 2019; EIA expects OPEC production to decline a further 3.9 million b/d to average 30.7 million b/d in 2020.

EIA based its OPEC revenues estimate on forecast petroleum liquids production—including crude oil, condensate, and natural gas plant liquids—and forecast values of OPEC petroleum consumption and crude oil prices.

EIA recently published a more detailed discussion of OPEC revenue in This Week in Petroleum.

November, 16 2020
The United States consumed a record amount of renewable energy in 2019

In 2019, consumption of renewable energy in the United States grew for the fourth year in a row, reaching a record 11.5 quadrillion British thermal units (Btu), or 11% of total U.S. energy consumption. The U.S. Energy Information Administration’s (EIA) new U.S. renewable energy consumption by source and sector chart published in the Monthly Energy Review shows how much renewable energy by source is consumed in each sector.

In its Monthly Energy Review, EIA converts sources of energy to common units of heat, called British thermal units (Btu), to compare different types of energy that are more commonly measured in units that are not directly comparable, such as gallons of biofuels compared with kilowatthours of wind energy. EIA uses a fossil fuel equivalence to calculate primary energy consumption of noncombustible renewables such as wind, hydro, solar, and geothermal.

U.S. renewable energy consumption by sector

Source: U.S. Energy Information Administration, Monthly Energy Review

Wind energy in the United States is almost exclusively used by wind-powered turbines to generate electricity in the electric power sector, and it accounted for about 24% of U.S. renewable energy consumption in 2019. Wind surpassed hydroelectricity to become the most-consumed source of renewable energy on an annual basis in 2019.

Wood and waste energy, including wood, wood pellets, and biomass waste from landfills, accounted for about 24% of U.S. renewable energy use in 2019. Industrial, commercial, and electric power facilities use wood and waste as fuel to generate electricity, to produce heat, and to manufacture goods. About 2% of U.S. households used wood as their primary source of heat in 2019.

Hydroelectric power is almost exclusively used by water-powered turbines to generate electricity in the electric power sector and accounted for about 22% of U.S. renewable energy consumption in 2019. U.S. hydropower consumption has remained relatively consistent since the 1960s, but it fluctuates with seasonal rainfall and drought conditions.

Biofuels, including fuel ethanol, biodiesel, and other renewable fuels, accounted for about 20% of U.S. renewable energy consumption in 2019. Biofuels usually are blended with petroleum-based motor gasoline and diesel and are consumed as liquid fuels in automobiles. Industrial consumption of biofuels accounts for about 36% of U.S. biofuel energy consumption.

Solar energy, consumed to generate electricity or directly as heat, accounted for about 9% of U.S. renewable energy consumption in 2019 and had the largest percentage growth among renewable sources in 2019. Solar photovoltaic (PV) cells, including rooftop panels, and solar thermal power plants use sunlight to generate electricity. Some residential and commercial buildings heat with solar heating systems.

October, 20 2020