In the September 2019 update of its Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) revised its forecast for 2019 global liquid fuels consumption down to 100.8 million barrels per day (b/d), 0.1 million b/d lower than the August STEO and 0.7 million b/d lower than the January STEO. EIA attributes the lower forecast 2019 global oil consumption to a downward revision of 0.18 million b/d in the United States and Europe, in addition to downward revisions to forecast consumption in the Middle East and in India (Figure 1). If the September forecast is realized, 2019 would be the first year that global liquid fuels consumption grows less than 1.0 million b/d since 2011.
The latest STEO forecast for total global consumption growth reflects lower expected economic growth rates for 2019 compared with 2018. Based on forecasts from Oxford Economics, EIA has lowered the STEO forecast global oil-weighted gross domestic product (GDP) growth projection every month in 2019. In the January STEO, EIA forecast a 2019 year-over-year GDP growth rate of 2.9%, but in the September STEO, EIA forecast a 2.1% growth rate.
The reduced GDP forecasts through the year coincided with declining economic indicators, such as the manufacturing Purchasing Managers’ Index (PMI), a survey of purchasing managers’ current and expected business conditions. A PMI higher than 50 indicates an expansion of activity and lower than 50 indicates a contraction. PMI results for several countries in August signaled a contraction in manufacturing activity (Figure 2). PMI reports were mixed for the United States in August. The IHS Markit PMI showed slight expansion, although it was at the lowest level since September 2009, while the U.S. Institute for Supply Management’s PMI showed contraction for the first time since 2016. The manufacturing PMI for Europe’s largest economy, Germany, has been lower than 50 since January, and the PMI for the broader Eurozone has been lower than 50 since February. Among 37 countries that publish manufacturing PMI surveys, the median PMI declined to 49.1 in August.
Economic activity directly affects liquid fuels consumption. EIA revised down its 2019 forecast for U.S. total liquid fuels consumption by 0.2 million b/d from the January STEO to 20.6 million b/d in the September STEO. Consumption of motor gasoline and distillate together comprise 0.1 million b/d of the decline; forecast gasoline consumption decreased by 30,000 b/d, and forecast distillate consumption decreased by 70,000 b/d. In the September STEO, EIA forecasts that vehicle miles traveled in the United States will increase by 1% from 2018 to 8.9 million miles per day in 2019, lower than the January STEO forecast of 9.0 million miles per day. The lower forecast vehicle miles traveled contributes to the decline in forecast gasoline consumption. Distillate consumption is closely linked with economic activity, and slower growth rates in several sectors of the economy are contributing to lower distillate consumption than previously forecast. Because of the downward revisions in the consumption forecast for both gasoline and distillate, in the September STEO, EIA forecasts consumption of both fuels to be lower than 2018 levels.
The slower economic growth that has affected U.S. liquid fuels consumption is also contributing to lower-than-expected consumption in other countries. EIA estimates that European liquid fuels consumption totaled 14.7 million b/d for the first half of 2019, 0.2 million b/d lower than the forecast from the January STEO, partially as a result of a warmer-than-normal winter in the first quarter. In the Middle East, sanctions on the Iranian oil sector have contributed to significantly lower economic activity and domestic oil consumption. In addition, in Saudi Arabia, the lowest level of crude oil consumption for power generation since at least 2009 is limiting oil consumption growth in the Middle East. In Asia, EIA revised Indian liquid fuels consumption growth for 2019 down by 0.1 million b/d from the January STEO to the September STEO because slower economic growth contributed to lower first-half 2019 liquid fuels consumption than forecast.
In its September STEO, EIA forecasts global liquid fuels supply and demand will be relatively balanced in the third quarter of 2019, followed by a 0.4 million b/d stock build in the fourth quarter (Figure 3). EIA forecasts that 2019 global liquid fuels stocks will increase by an average of 0.2 million b/d, partially as a result of the lower liquid fuels consumption growth.
U.S. average regular gasoline and diesel prices fall
The U.S. average regular gasoline retail price fell more than 1 cent from the previous week to $2.55 per gallon on September 9, 28 cents lower than the same time last year. The Midwest price fell nearly 3 cents to $2.44 per gallon, and the East Coast price fell nearly 2 cents to $2.46 per gallon. The Gulf Coast price increased 1 cent to $2.24 per gallon, and the West Coast and Rocky Mountain prices each rose nearly 1 cent to $3.25 per gallon and $2.63 per gallon, respectively.
The U.S. average diesel fuel price fell nearly 1 cent to $2.97 per gallon on September 9, 29 cents lower than a year ago. The Midwest price fell 1 cent to $2.86 per gallon, and the West Coast and East Coast prices each fell nearly 1 cent to $3.55 per gallon and $2.99 per gallon, respectively. The Rocky Mountain and Gulf Coast prices each rose nearly 1 cent to $2.93 per gallon and $2.75 per gallon, respectively.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 0.7 million barrels last week to 97.8 million barrels as of September 6, 2019, 12.1 million barrels (14.1%) greater than the five-year (2014-2018) average inventory levels for this same time of year. Gulf Coast inventories increased by 0.5 million barrels, and Midwest and Rocky Mountain/West Coast inventories each increased by 0.2 million barrels. East Coast inventories decreased by 0.2 million barrels. Propylene non-fuel-use inventories represented 4.2% of total propane/propylene inventories.
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This winter, natural gas prices have been at their lowest levels in decades. On Monday, February 10, the near-month natural gas futures price at the New York Mercantile Exchange (NYMEX) closed at $1.77 per million British thermal units (MMBtu). This price was the lowest February closing price for the near-month contract since at least 2001, in real terms, and the lowest near-month futures price in any month since March 8, 2016, according to Bloomberg, L.P. and FRED data.
In addition, according to Natural Gas Intelligence data, the daily spot price at the Henry Hub national benchmark was $1.81/MMBtu on February 10, 2020, the lowest price in real terms since March 9, 2016. Henry Hub spot prices have ranged between $1.81/MMBtu and $2.84/MMBtu this winter heating season (since November 1, 2019), generally because relatively warm winter weather has reduced demand for natural gas for heating. Natural gas production growth has outpaced demand growth, reducing the need to withdraw natural gas from underground storage.
Dry natural gas production in January 2020 averaged about 95.0 billion cubic feet per day (Bcf/d), according to IHS Markit data. IHS Markit also estimates that in January 2020 the United States saw the third-highest monthly U.S. natural gas production on record, down slightly from the previous two months.
IHS Markit estimates that U.S. natural gas consumption by residential, commercial, industrial, and electric power sectors averaged 96 Bcf/d for January, which was about 4.4 Bcf/d less than the average for January 2019, largely because of decreases in residential and commercial consumption as a result of warmer temperatures.
However, IHS Markit estimates that overall consumption of natural gas (including feed gas to liquefied natural gas (LNG) export facilities, pipeline fuel losses, and net exports by pipeline to Mexico) averaged about 117.5 Bcf/d in January 2020, an increase of about 0.2 Bcf/d from last year. This overall increase is largely a result of an almost doubling of LNG feed gas to about 8.5 Bcf/d.
Because supply growth has outpaced demand growth, less natural gas has been withdrawn from storage withdrawals this winter. Despite starting the 2019–20 heating season with the third-lowest level of natural gas inventory since 2009, by January 17, 2020, working natural gas inventories reached relatively high levels for mid-winter. The U.S. Energy Information Administration’s (EIA) data on natural gas inventories for the Lower 48 states as of February 7, 2020, reflect a 215 Bcf surplus to the five-year average. In EIA’s latest short-term forecast, more natural gas remains in storage levels than the previous five-year average through the remainder of the winter.
According to the National Oceanic and Atmospheric Administration (NOAA), January 2020 was the fifth-warmest in its 126-year climate record. Heating degree days (HDDs), a temperature-based metric for heating demand, have been relatively low this winter, which is consistent with a warmer winter. During some weeks in late December and early January, the United States saw 25% to 30% fewer HDDs than the 30-year average. This winter, through February 8, residential natural gas customers in the United States have seen 11% fewer HDDs than the 30-year average.
Source: U.S. Energy Information Administration, based on National Oceanic and Atmospheric Administration Climate Prediction Center data
Headline crude prices for the week beginning 10 February 2020 – Brent: US$53/b; WTI: US$49/b
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