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Last Updated: June 7, 2018
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Market Watch

Headline crude prices for the week beginning 4 June 2018 – Brent: US$75/b; WTI: US$65/b

  • Oil prices continue their retreat, with the Brent-WTI spread growing to exceed US$10/b.
  • With traders mollified that OPEC will step in to replace any lost volumes from Iran and Venezuela, the market is now focusing on the ever-present situation of increasing US production.
  • The EIA confirmed the American oil output hit 10.47 mmb/d in March, the highest level ever recorded, with Texan output – which includes the Permian basin – rising by 4% to a record 4.2 mmb/d.
  • OPEC members Saudi Arabia, the UAE, Kuwait and Algeria – along with Oman – met unofficially last Saturday, paving the way for the official meeting on June 22. The market is expecting OPEC to announce agreement for an output boost, far earlier than expected.
  • The strengthening dollar has also sparked a sell-off in crude oil, part of a funds retreat from dollar-denominated commodities.
  • The US active rig count continues to grow. American driller added two more oil rigs, bringing the oil rig total to 861 and the total rig count to 1,060, despite a retreat in prices over the last two weeks.
  • Crude price outlook: With OPEC moving to contain any supply-side shock to current crude pricing, the issue of growing American production and the infrastructure crunch keeping US volumes inland will be the focus. We expect prices to be at US$74-75/b for Brent, and US$63-64/b for WTI.

Headlines of the week

Upstream

  • The Canadian government will purchase Kinder Morgan’s Trans Mountain oil pipeline, ensuring that it will be built despite fierce opposition.
  • Uncertainty continues to cloud the impact of the new Iranian sanctions. Russia’s Lukoil has decided not to pursue any projects in Iran, while India is defiant and will ‘continue to import Iranian crude’. Meanwhile, Total has left open the possibility of returning to Iran one day even if it is forced to abandon its South Pars 11 stake unless it can obtain waivers.
  • Italy’s Eni is aiming to reduce its stakes – but not completely exit – in its oilfields in Mexico and Indonesia, part of its ‘dual exploration’ strategy.
  • Total and its partners have taken FID on the Zinia 2 deepwater, offshore project in Angola’s Block 17, with a production capacity of 40,000 b/d.
  • Shell has started production at its Kaikias development in the US Gulf of Mexico, about a year ahead of schedule with peak output at 40,000 b/d.
  • Lebanon’s maiden foray into oil and gas exploration has begun with the Total-Eni-Novatek consortium given the go-ahead for Blocks 4 and 9.
  • Upstream seismic players are preparing a legal response to New Zealand’s decision to stop issuing new offshore exploration permits, citing ‘ongoing work commitments’.

Downstream

  • Argentina is raising its biodiesel export tax to 15% from 8% effective July 1, as it aims to mollify the US and the EU over their anti-dumping stance.
  • The Philippines will be creating a strategic petroleum reserve, beginning with importing three days of diesel requirements, mainly from Russia.

Natural Gas/LNG

  • Following the collapse of its own LNG project in Canada, Petronas has agreed to purchase a 25% stake in the Kitimat LNG project in British Columbia, joining Shell, PetroChina, Diamond LNG and Kogas.
  • China’s CNPC is fast-tracking a plan to consolidate its underground gas storage assets under a single business to expedite infrastructure upgrades necessary to avoid supply crunches during peak winter demand season.
  • Schlumberger has quit the Fortuna deepwater LNG project in Equatorial Guinea, citing ‘problems with the project’s financing’.
  • Australia’s Gladstone LNG project in Australia has hit a new milestone – delivering its 200th LNG cargo to Incheon in South Korea.
  • Bulgaria and Russia have confirmed that the second like of the TurkStream gas pipeline will pass through Bulgaria, bypassing Ukraine.
  • Spain’s Gas Natural has scrapped plans to build an LNG terminal in northern Italy, given that it has already sold its Italian businesses.
  • The first phase of Azerbaijan’s Southern Gas Corridor pipeline, channeling Shah Deniz gas to Europe via Turkey has been launched.
  • Oman Oil is seeking buyers for a 10% stake in its Khazzan gas field, which would come from its 40% share; with BP owning the remaining 60%.

Corporate

  • Petrobras’ CEO Pedro Parente has resigned – as the 11-day trucker strike against fuel prices claimed its highest-profile victim; Parente has been replaced by CFO Ivan Monteiro.

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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