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Last Updated: May 9, 2018
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Forecast HighlightsGlobal Liquid Fuels

  • Brent crude oil spot prices averaged $72 per barrel (b) in April, an increase of $6/b from the March level and the first time monthly Brent crude oil prices have averaged more than $70/b since November 2014. EIA forecasts Brent spot prices will average $71/b in 2018 and $66/b in 2019, which are $7/b and $3/b higher, respectively, than in the April STEO. EIA expects West Texas Intermediate (WTI) crude oil prices to average $5/b lower than Brent prices in both 2018 and 2019. NYMEX WTI futures and options contract values for August 2018 delivery traded during the five-day period ending May 3, 2018, suggest a range of $54/b to $84/b encompasses the market expectation for August 2018 WTI prices at the 95% confidence level.
  • For the 2018 April–September summer driving season, EIA forecasts U.S. regular gasoline retail prices to average $2.90/gallon (gal), 17 cents/gal higher than in last month’s STEO and up from an average of $2.41/gal last summer. The higher forecast gasoline prices are primarily the result of higher forecast crude oil prices. For the year 2018, EIA expects U.S. regular gasoline retail prices to average $2.79/gal. Monthly average gasoline prices are forecast to reach a summer peak of $2.97/gal in June, before falling to $2.86/gal in September.
  • EIA estimates that U.S. crude oil production averaged 10.5 million barrels per day (b/d) in April, up 120,000 b/d from the March level. EIA projects that U.S. crude oil production will average 10.7 million b/d in 2018, up from 9.4 million b/d in 2017, and will average 11.9 million b/d in 2019, 0.4 million b/d higher than forecast in the April STEO. In the current outlook, EIA forecasts U.S. crude oil production will end 2019 at more than 12 million b/d.
  • EIA forecasts that total crude oil and petroleum product net imports will fall from an annual average of 3.7 million b/d in 2017 to an average of 2.6 million b/d in 2018 and to 1.5 million b/d in 2019, which would be the lowest level of net imports since 1958.
  • EIA estimates global petroleum and other liquid fuels inventories declined by 0.5 million b/d in 2017. In this forecast, global inventories grow by 0.2 million b/d in 2018 and by 0.6 million b/d in 2019.
Natural Gas
  • U.S. dry natural gas production averaged 73.6 billion cubic feet per day (Bcf/d) in 2017. EIA forecasts dry natural gas production will average 80.5 Bcf/d in 2018, establishing a new record. EIA expects natural gas production will rise again by 2.9 Bcf/d in 2019 to 83.3 Bcf/d.
  • Growing U.S. natural gas production is expected to support increasing natural gas exports in the forecast. EIA forecasts net natural gas exports to increase from 0.4 Bcf/d in 2017 to an annual average of 2.0 Bcf/d in 2018 and 4.6 Bcf/d in 2019.
  • EIA estimates that natural gas inventories increased by 22 billion cubic feet (Bcf) in April, ending the month 27% below the five-year average for the end of April. If confirmed in the monthly data, the April 2018 injection would be the smallest April injection since 1983. Preliminary data indicate April temperatures were the coldest for that month in the past 21 years, which contributed to low injections. Based on EIA’s forecast of rising production, natural gas inventories should increase by more than the five-year average rate of growth during current the injection season (April–October) to reach more than 3.5 trillion cubic feet on October 31, which would be 8% lower than the five-year average for the end of October.
  • EIA expects Henry Hub natural gas spot prices to average $3.01/million British thermal units (MMBtu) in 2018 and $3.11/MMBtu in 2019. NYMEX futures and options contract values for August 2018 delivery that traded during the five-day period ending May 3, 2018, suggest that a range of $2.32/MMBtu to $3.40/MMBtu encompasses the market expectation for August 2018 Henry Hub natural gas prices at the 95% confidence level.
Electricity, coal, renewables, and emissions
  • EIA expects the share of U.S. total utility-scale electricity generation from natural gas-fired power plants to rise from 32% in 2017 to 34% in both 2018 and 2019. The forecast electricity generation share from coal averages 29% in both 2018 and 2019, down from 30% in 2017. The nuclear share of generation was 20% in 2017 and is forecast to be 20% in 2018 and 19% in 2019. Nonhydropower renewables provided slightly less than 10% of electricity generation in 2017 and are expected to provide more than 10% in 2018 and nearly 11% in 2019. The generation share of hydropower was 7% in 2017 and is forecast to fall slightly below that level both 2018 and 2019.
  • EIA forecasts coal production to decline by 3% to 751 million short tons (MMst) in 2018. The production decrease is largely attributable to a forecast decline of 4% in domestic coal consumption in 2018, with most of the decline expected to be in the electric power sector. A 9% forecast decline in coal exports also contributes to lower expected coal production in 2018. EIA expects coal production to remain nearly unchanged in 2019 at 752 MMst.
  • In 2017, EIA estimates that wind generated an average of 697,000 megawatthours per day (MWh/d). EIA forecasts that wind generation will rise to 741,000 MWh/d in 2018 and to 766,000 MWh/d in 2019. If factors such as precipitation and snowpack remain as forecast, conventional hydropower is forecast to generate 747,000 MWh/d in 2019, making it the first year that wind generation would exceed hydropower generation in the United States.
  • After declining by 0.9% in 2017, EIA forecasts that energy-related carbon dioxide (CO2) emissions will increase by 1.4% in 2018 and by 0.4% in 2019. Energy-related CO2 emissions are sensitive to changes in weather, economic growth, and energy prices.

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Pricing-in The Covid 19 Vaccine

In a few days, the bi-annual OPEC meeting will take place on November 30, leading into a wider OPEC+ meeting on December 30. This is what all the political jostling and negotiations currently taking place is leading up to, as the coalition of major oil producers under the OPEC+ banner decide on the next step of its historic and ambitious supply control plan. Designed to prop up global oil prices by managing supply, a postponement of the next phase in the supply deal is widely expected. But there are many cracks appearing beneath the headline.

A quick recap. After Saudi Arabia and Russia triggered a price war in March 2020 that led to a collapse in oil prices (with US crude prices briefly falling into negative territory due to the technical quirk), OPEC and its non-OPEC allies (known collectively as OPEC+) agreed to a massive supply quota deal that would throttle their production for 2 years. The initial figure was 10 mmb/d, until Mexico’s reticence brought that down to 9.7 mmb/d. This was due to fall to 7.7 mmb/d by July 2020, but soft demand forced a delay, while Saudi Arabia led the charge to ensure full compliance from laggards, which included Iraq, Nigeria and (unusually) the UAE. The next tranche will bring the supply control ceiling down to 5.7 mmb/d. But given that Covid-19 is still raging globally (despite promising vaccine results), this might be too much too soon. Yes, prices have recovered, but at US$40/b crude, this is still not sufficient to cover the oil-dependent budgets of many OPEC+ nations. So a delay is very likely.

But for how long? The OPEC+ Joint Technical Committee panel has suggested that the next step of the plan (which will effectively boost global supply by 2 mmb/d) be postponed by 3-6 months. This move, if adopted, will have been presaged by several public statements by OPEC+ leaders, including a pointed comment from OPEC Secretary General Mohammad Barkindo that producers must be ready to respond to ‘shifts in market fundamentals’.

On the surface, this is a necessary move. Crude prices have rallied recently – to as high as US$45/b – on positive news of Covid-19 vaccines. Treatments from Pfizer, Moderna and the Oxford University/AstraZeneca have touted 90%+ effectiveness in various forms, with countries such as the US, Germany and the UK ordering billions of doses and setting the stage for mass vaccinations beginning December. Life returning to a semblance of normality would lift demand, particularly in key products such as gasoline (as driving rates increase) and jet fuel (allowing a crippled aviation sector to return to life). Underpinning the rally is the understanding that OPEC+ will always act in the market’s favour, carefully supporting the price recovery. But there are already grouses among OPEC members that they are doing ‘too much’. Led by Saudi Arabia, the draconian dictates of meeting full compliance to previous quotas have ruffled feathers, although most members have reluctantly attempt to abide by them. But there is a wider existential issue that OPEC+ is merely allowing its rivals to resuscitate and leapfrog them once again; the US active oil rig count by Baker Hughes has reversed a chronic decline trend, as WTI prices are at levels above breakeven for US shale.

Complaints from Iran, Iraq and Nigeria are to be expected, as is from Libya as it seeks continued exemption from quotas due to the legacy of civil war even though it has recently returned to almost full production following a truce. But grievance is also coming from an unexpected quarter: the UAE. A major supporter in the Saudi Arabia faction of OPEC, reports suggest that the UAE (led by the largest emirate, Abu Dhabi) are privately questioning the benefit of remaining in OPEC. Beset by shrivelling oil revenue, the Emiratis have been grumbling about the fairness of their allocated quota as they seek to rebuild their trade-dependent economy. There has been suggestion that the Emiratis could even leave OPEC if decisions led to a net negative outcome for them. Unlike the Qatar exit, this will not just be a blow to OPEC as a whole, questioning its market relevance but to Saudi Arabia’s lead position, as it loses one of its main allies, reducing its negotiation power. And if the UAE leaves, Kuwait could follow, which would leave the Saudis even more isolated.

This could be a tactic to increase the volume of the UAE’s voice in OPEC+, which has been dominated by Saudi Arabia and Russia. But it could also be a genuine policy shift. Either way, it throws even more conundrums onto a delicate situation that could undermine an already fragile market. Despite the positive market news led by Covid-19 vaccines and demand recovery in Asia, American crude oil inventories in Cushing are now approaching similar high levels last seen in April (just before the WTI crash) while OPEC itself has lowered its global demand forecast for 2020 by 300,000 b/d. That’s dangerous territory to be treading in, especially if members of the OPEC+ club are threatening to exit and undermine the pack. A postponement of the plan seems inevitable on December 1 at this point, but it is what lies beyond the immediate horizon that is the true threat to OPEC+.

Market Outlook:

  • Crude price trading range: Brent – US$44-46/b, WTI – US$42-44/b
  • More positive news on Covid-19 vaccines have underpinned a crude price rally despite worrying signs of continued soft demand and inventory build-ups
  • Pfizer’s application for emergency approval of its vaccine is paving the way for mass vaccinations to begin soon, with some experts predicting that the global economy could return to normality in Q2 2021
  • Market observers are predicting a delay in the OPEC+ supply quota schedule, but the longer timeline for the club’s plan – which is set to last until April 2022 – may have to be brought forward to appease current dissent in the group

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November, 25 2020
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