EIA expects Brent prices will average $71 per barrel in 2018 before declining to $68 per barrel in 2019
In the June 2018 update of its Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts Brent crude oil prices will average $71 per barrel (b) in 2018 and $68/b in 2019. The new 2019 forecast price is $2/b higher than in the May STEO. The increase reflects global oil markets balances that EIA expects to be tighter than previously forecast because of lowered expected production growth from both the Organization of the Petroleum Exporting Countries (OPEC) and the United States. Brent crude oil spot prices averaged $77/b in May, an increase of $5/b from April and the highest monthly average price since November 2014. EIA expects West Texas Intermediate (WTI) crude oil prices will average almost $7/b lower than Brent prices in 2018 and $6/b lower than Brent prices in 2019 (Figure 1).
EIA expects that OPEC crude oil production will average 32.0 million b/d in 2018, a decrease of about 0.4 million b/d compared with 2017. Total OPEC crude oil output is expected to increase slightly, however, to an average of 32.1 million b/d in 2019, despite expected falling production in Venezuela and Iran, along with decreasing output in a number of other countries.
OPEC, Russia, and other non-OPEC countries will meet on June 22, 2018, to assess current oil market conditions associated with their existing crude oil production reductions. Current reductions are scheduled to continue through the end of 2018. Oil ministers from Saudi Arabia and Russia have announced that they will re-evaluate the production reduction agreement given accelerated output declines from Venezuela and uncertainty surrounding Iran’s production levels. In the June STEO, EIA assumes some supply increases from major oil producers in 2019. Depending on the outcome of the June 22 meeting, however, the magnitude of any supply response is uncertain. EIA currently forecasts global petroleum and other liquids inventories will increase by 210,000 b/d in 2019, which EIA expects will put modest downward pressure on crude oil prices in the second half of 2018 and in 2019.
EIA expects a decline in Iranian crude oil production and exports starting in November 2018, when many of the sanctions lifted in January 2016 are slated to be re-imposed. Iranian crude oil production is expected to fall by 0.2 million b/d in November 2018 compared with October and by an additional 0.5 million b/d in 2019.
The outlook for Venezuelan production is also lower than in the May STEO, with EIA now expecting larger declines in both 2018 and 2019 than previously forecasted. The seizure of state oil company PdVSA’s assets in the Caribbean by ConocoPhillips has diminished PdVSA’s ability to continue meeting its export obligations because it now must rely solely on domestic ports and ship-to-ship transfers to sustain crude oil exports. Venezuela’s domestic export infrastructure, however, is in disrepair and unable to accommodate the volume of exports previously handled out of its Caribbean facilities.
EIA expects that decreases in Iranian and Venezuelan production will be partially offset by increased production from Persian Gulf producers, most notably Saudi Arabia, which will likely increase production in an effort to offset Iranian production losses. Other sources of increasing production include Kuwait, the United Arab Emirates, and Qatar, all of which have been restraining their crude oil output in compliance with the November 2016 OPEC/non-OPEC agreement on production cuts.
U.S. crude oil prices in both the Permian region and in Cushing, Oklahoma, traded at lower values relative to Brent in May, continuing the trend of constraints in transporting crude oil to the U.S. Gulf Coast for refining or for export, as discussed in the April and May STEOs. The Brent–WTI front-month futures price spread, in particular, widened to $11.43/b on June 7, the widest since February 2015. Although transportation constraints to the U.S. Gulf Coast are primarily affecting Permian Basin crude oils, the rapid increase in the Brent–WTI futures price spread in May and early June 2018 suggests some constraints are developing in crude oil transported from Cushing (where the WTI futures contract is delivered) to the Gulf Coast.
Because transportation options out of Cushing are limited, it remains uncertain how much the spread could narrow if Gulf Coast refiners increase refinery runs, which were lower than expected in May. In addition, U.S. crude oil exports are currently limited to higher-cost options which, unless port infrastructure buildout is expanded, will likely maintain a wide Brent–WTI spread. EIA is increasing its forecast of the Brent–WTI spot price spread for the second half of 2018 from $5.49/b to $7.67/b and for 2019 from $5.12/b to $5.79/b.
EIA estimates that U.S. crude oil production averaged 10.7 million b/d in May 2018, up 80,000 b/d from the April level. EIA projects that U.S. crude oil production will average 10.8 million b/d for full-year 2018, up from 9.4 million b/d in 2017, and will average 11.8 million b/d in 2019.
U.S. average regular gasoline and diesel prices decrease
The U.S. average regular gasoline retail price decreased nearly 3 cents from last week to $2.91 per gallon on June 11, 2018, up 55 cents from the same time last year. East Coast prices decreased nearly four cents to $2.84 per gallon, Midwest prices decreased three cents to $2.82 per gallon, Gulf Coast prices decreased nearly three cents to $2.70 per gallon, and West Coast and Rocky Mountain prices each decreased less than a penny to $3.45 per gallon and $2.99 per gallon, respectively.
The U.S. average diesel fuel price decreased 2 cents from last week to $3.27 per gallon on June 11, 2018, 74 cents higher than a year ago. Midwest prices declined nearly three cents to $3.20 per gallon, while East Coast, Gulf Coast, West Coast, and Rocky Mountain prices each declined nearly two cents to $3.26 per gallon, $3.04 per gallon, $3.77 per gallon, and $3.34 per gallon, respectively.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 3.7 million barrels last week to 50.8 million barrels as of June 8, 2018, 10.7 million barrels (17.4%) lower than the five-year average inventory level for this same time of year. Midwest, Gulf Coast, Rocky Mountain/West Coast, and East Coast inventories increased by 1.9 million barrels, 1.5 million barrels, 0.2 million barrels, and 0.1 million barrels, respectively. Propylene non-fuel-use inventories represented 5.7% of total propane/propylene inventories.
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According to the Nigeria National Petroleum Corporation (NNPC), Nigeria has the world’s 9th largest natural gas reserves (192 TCF of gas reserves). As at 2018, Nigeria exported over 1tcf of gas as Liquefied Natural Gas (LNG) to several countries. However domestically, we produce less than 4,000MW of power for over 180million people.
Think about this – imagine every Nigerian holding a 20W light bulb, that’s how much power we generate in Nigeria. In comparison, South Africa generates 42,000MW of power for a population of 57 million. We have the capacity to produce over 2 million Metric Tonnes of fertilizer (primarily urea) per year but we still import fertilizer. The Federal Government’s initiative to rejuvenate the agriculture sector is definitely the right thing to do for our economy, but fertilizer must be readily available to support the industry. Why do we import fertilizer when we have so much gas?
I could go on and on with these statistics, but you can see where I’m going with this so I won’t belabor the point. I will leave you with this mental image: imagine a man that lives with his family on the banks of a river that has fresh, clean water. Rather than collect and use this water directly from the river, he treks over 20km each day to buy bottled water from a company that collects the same water, bottles it and sells to him at a profit. This is the tragedy on Nigeria and it should make us all very sad.
Several indigenous companies like Nestoil were born and grown by the opportunities created by the local and international oil majors – NNPC and its subsidiaries – NGC, NAPIMS, Shell, Mobil, Agip, NDPHC. Nestoil’s main focus is the Engineering Procurement Construction and Commissioning of oil and gas pipelines and flowstations, essentially, infrastructure that supports upstream companies to produce and transport oil and natural gas, as well as and downstream companies to store and move their product. In our 28 years of doing business, we have built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land to seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. I would be remiss if I do not use this opportunity to say a big thank you to those companies that gave us the opportunity to serve you. The over 2,000 direct staff and over 50,000 indirect staff we employ thank you. We are very grateful for the past opportunities given to us, and look forward to future opportunities that we can get.
Headline crude prices for the week beginning 15 July 2019 – Brent: US$66/b; WTI: US$59/b
Headlines of the week
Unplanned crude oil production outages for the Organization of the Petroleum Exporting Countries (OPEC) averaged 2.5 million barrels per day (b/d) in the first half of 2019, the highest six-month average since the end of 2015. EIA estimates that in June, Iran alone accounted for more than 60% (1.7 million b/d) of all OPEC unplanned outages.
EIA differentiates among declines in production resulting from unplanned production outages, permanent losses of production capacity, and voluntary production cutbacks for OPEC members. Only the first of those categories is included in the historical unplanned production outage estimates that EIA publishes in its monthly Short-Term Energy Outlook (STEO).
Unplanned production outages include, but are not limited to, sanctions, armed conflicts, political disputes, labor actions, natural disasters, and unplanned maintenance. Unplanned outages can be short-lived or last for a number of years, but as long as the production capacity is not lost, EIA tracks these disruptions as outages rather than lost capacity.
Loss of production capacity includes natural capacity declines and declines resulting from irreparable damage that are unlikely to return within one year. This lost capacity cannot contribute to global supply without significant investment and lead time.
Voluntary cutbacks are associated with OPEC production agreements and only apply to OPEC members. Voluntary cutbacks count toward the country’s spare capacity but are not counted as unplanned production outages.
EIA defines spare crude oil production capacity—which only applies to OPEC members adhering to OPEC production agreements—as potential oil production that could be brought online within 30 days and sustained for at least 90 days, consistent with sound business practices. EIA does not include unplanned crude oil production outages in its assessment of spare production capacity.
As an example, EIA considers Iranian production declines that result from U.S. sanctions to be unplanned production outages, making Iran a significant contributor to the total OPEC unplanned crude oil production outages. During the fourth quarter of 2015, before the Joint Comprehensive Plan of Action became effective in January 2016, EIA estimated that an average 800,000 b/d of Iranian production was disrupted. In the first quarter of 2019, the first full quarter since U.S. sanctions on Iran were re-imposed in November 2018, Iranian disruptions averaged 1.2 million b/d.
Another long-term contributor to EIA’s estimate of OPEC unplanned crude oil production outages is the Partitioned Neutral Zone (PNZ) between Kuwait and Saudi Arabia. Production halted there in 2014 because of a political dispute between the two countries. EIA attributes half of the PNZ’s estimated 500,000 b/d production capacity to each country.
In the July 2019 STEO, EIA only considered about 100,000 b/d of Venezuela’s 130,000 b/d production decline from January to February as an unplanned crude oil production outage. After a series of ongoing nationwide power outages in Venezuela that began on March 7 and cut electricity to the country's oil-producing areas, EIA estimates that PdVSA, Venezuela’s national oil company, could not restart the disrupted production because of deteriorating infrastructure, and the previously disrupted 100,000 b/d became lost capacity.