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Last Updated: May 18, 2021
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Forecast Highlights

Global liquid fuels

  • The May Short-Term Energy Outlook (STEO) remains subject to heightened levels of uncertainty because responses to COVID-19 continue to evolve. Economic activity has increased significantly after reaching multiyear lows in the second quarter of 2020. The increase in economic activity and easing of COVID-19-related restrictions have contributed to rising energy use. U.S. gross domestic product (GDP) declined by 3.5% in 2020 from 2019 levels. This STEO assumes U.S. GDP will grow by 6.2% in 2021 and by 4.3% in 2022. The U.S. macroeconomic assumptions in this outlook are based on forecasts by IHS Markit. Our forecast assumes continuing economic growth and increasing mobility with easing COVID-19-related restrictions, and any developments that would cause deviations from these assumptions would likely cause energy consumption and prices to deviate from our forecast.
  • We completed modeling and analysis for this report before the temporary closure of the Colonial Pipeline on May 7 as a result of a cyberattack. Although effects of the outage are not reflected in this report, we are closely following supply and price developments related to the outage. Updates related to the outage will be reflected in Today in EnergyThis Week in Petroleum, and the Weekly Petroleum Status Report as they become available.
  • Brent crude oil spot prices averaged $65 per barrel (b) in April, unchanged from the average in March. Brent prices were steady in April as market participants considered diverging trends in global COVID-19 cases. In some regions, notably the United States, oil demand is rising as both COVID-19 vaccination rates and economic activity increase. In other regions, notably India, oil demand is declining because of a sharp rise in COVID-19 cases. EIA forecasts that Brent prices will average $65/b in the second quarter of 2021, $61/b during the second half of 2021, and $61/b in 2022.
  • We estimate that the world consumed 96.2 million barrels per day (b/d) of petroleum and liquid fuels in April, an increase of 15.8 million b/d from April 2020 but 4.0 million b/d less than April 2019 levels. We forecast that global consumption of petroleum and liquid fuels will average 97.7 million b/d for all of 2021, which is a 5.4 million b/d increase from 2020. We forecast that consumption of petroleum and liquid fuels will increase by 3.7 million b/d in 2022 to average 101.4 million b/d.
  • We expect that gasoline consumption in the United States will average almost 9.0 million b/d this summer (April–September), which is 1.2 million b/d more than last summer but almost 0.6 million b/d less than summer 2019. We increased our summer gasoline consumption forecast by 0.1 million b/d from last month based on weekly data that suggested more gasoline consumption than we had previously forecast. The increase also reflects IHS Markit’s increased employment forecast. For all of 2021, we forecast that U.S. gasoline consumption will average 8.7 million b/d, which is up from 2020 (8.0 million b/d) but down from 2019 (9.3 million b/d).
  • According to our most recent data, U.S. crude oil production averaged 9.9 million b/d in February 2021, which was down by 1.2 million b/d from January. In February, cold temperatures caused significant declines in crude oil production in Texas, as well as smaller declines in other states. We estimate that production outages were generally limited to February and that U.S. crude oil production rose to 10.9 million b/d in March and to almost 11.0 million b/d in April. Because the average price of West Texas Intermediate crude oil remains above $55/b in our forecast, we expect producers will drill and complete enough wells in the coming months to offset declines at existing wells. In addition, new projects in the Federal Offshore Gulf of Mexico contribute to rising production in the forecast. U.S. crude oil production in the forecast averages 11.3 million b/d in the fourth quarter of 2021 and then rises to average 11.8 million b/d in 2022.

Natural Gas

  • In April, the natural gas spot price at Henry Hub averaged $2.66 per million British thermal units (MMBtu), which is slightly higher than the March average of $2.62/MMBtu. We expect the Henry Hub spot price will average $2.78/MMBtu in the second quarter of 2021 and will average $3.05/MMBtu for all of 2021, which is up from the 2020 average of $2.03/MMBtu. We expect natural gas prices will rise this year, primarily as a result of two factors: growth in liquefied natural gas (LNG) exports and rising domestic natural gas consumption in the residential, commercial, and industrial sectors. In 2022, we expect the Henry Hub price will fall to an average $3.02/MMBtu amid slowing growth in LNG exports and rising production.
  • We expect that U.S. consumption of natural gas will average 82.6 billion cubic feet per day (Bcf/d) in 2021, down 0.7% from 2020. U.S. natural gas consumption declines in the forecast, in part, because electric power generators switch to coal from natural as a result of rising natural gas prices. In 2021, we expect residential and commercial natural gas consumption together will rise by 1.0 Bcf/d from 2020 and industrial consumption will rise by 0.8 Bcf/d from 2020. Rising consumption outside of the power sector results from expanding economic activity and colder temperatures in 2021 compared with 2020. We expect U.S. natural gas consumption will average 82.5 Bcf/d in 2022.
  • We estimate that natural gas inventories ended April 2021 at almost 2.0 trillion cubic feet (Tcf), which is 3% lower than the five-year (2016–20) average. Natural gas withdrawals from storage during the winter of 2020–21 were higher than the five-year average, largely as a result of the cold February temperatures that contributed to a drop in natural gas production. We forecast that natural gas inventories will end the 2021 injection season (end of October) at more than 3.6 Tcf, which is 3% below the five-year average.
  • We forecast that U.S. production of dry natural gas will average 91.1 Bcf/d in 2021, which is down 0.3% from 2020. Dry natural gas production fell by 6.0 Bcf/d in February to 86.3 Bcf/d because of cold weather that largely affected Texas. We estimate production increased to 91.3 Bcf/d in March. We expect relatively flat dry natural gas production in May ahead of production beginning to rise in mid-2021. We forecast dry natural gas production will reach 92.0 Bcf/d in the fourth quarter of 2021 and average 93.1 Bcf/d in 2022. The increase in production reflects sustained higher forecast prices for natural gas and crude oil compared with 2020.
  • U.S. LNG exports set an all-time record in March 2021 at 10.5 Bcf/d and averaged 9.2 Bcf/d in April—the most exported LNG for those months since the United States began exporting it in 2016. Throughout 2020 and in January 2021, more than half of U.S. LNG exports went to Asia. However, in February and March 2021, more than half of U.S. LNG exports went to Europe as a result of spot natural gas prices in Europe reaching levels similar to spot natural gas prices in Asia. For May, we forecast a decline in U.S. LNG exports to 8.6 Bcf/d (more than 90% of baseload export capacity utilization) before exports rise above 9.0 Bcf/d in the summer months to meet summer peak demand in Europe and Asia. We expect LNG exports will average 9.2 Bcf/d in both 2021 and 2022, up from 6.5 Bcf/d in 2020. Flat LNG exports in 2022 reflect our expectation that limited new export capacity will come online during the forecast period.

U.S. natural gas prices


Electricity, coal, renewables, and emissions

  • We forecast that electricity consumption in the United States will increase by 2.2% in 2021 after falling 3.9% in 2020. We forecast electricity sales to the industrial sector will grow by 3.3% in 2021. We forecast that retail electricity sales to the residential sector will grow by 2.9% in 2021, which is primarily a result of colder temperatures in the first quarter of 2021 compared with the same period in 2020. We expect retail electricity sales to the commercial sector will increase by 1.4% in 2021. Much of the increased electricity consumption across the sectors reflects improving economic conditions in 2021. For 2022, we forecast that U.S. electricity consumption will grow by another 1.0%.


World liquid fuels production and consumption balance


Natural gas Nat gas STEO Short Term Energy Outlook electricity EIA Market Oil and Gas industry Oil and Gas Companies liquid fuels
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Saudi Aramco Moves Into Russia’s Backyard

International expansions for Saudi Aramco – the largest oil company in the world – are not uncommon. But up to this point, those expansions have followed a certain logic: to create entrenched demand for Saudi crude in the world’s largest consuming markets. But Saudi champion’s latest expansion move defies, or perhaps, changes that logic, as Aramco returns to Europe. And not just any part of Europe, but Eastern Europe – an area of the world dominated by Russia – as Saudi Aramco acquires downstream assets from Poland’s PKN Orlen and signs quite a significant crude supply deal. How is this important? Let us examine.

First, the deal itself and its history. As part of the current Polish government’s plan to strengthen its national ‘crown jewels’ in line with its more nationalistic stance, state energy firm PKN Orlen announced plans to purchase its fellow Polish rival (and also state-owned) Grupa Lotos. The outright purchase fell afoul of EU anti-competition rules, which meant that PKN Orlen had to divest some Lotos assets in order to win approval of the deal. Some of the Lotos assets – including 417 fuel stations – are being sold to Hungary’s MOL, which will also sign a long-term fuel supply agreement with PKN Orlen for the newly-acquired sites, while PKN Orlen will gain fuel retail assets in Hungary and Slovakia as part of the deal. But, more interestingly, PKN Orlen has chosen to sell a 30% stake in the Lotos Gdansk refinery in Poland (with a crude processing capacity of 210,000 bd) to Saudi Aramco, alongside a stake in a fuel logistic subsidiary and jet fuel joint venture supply arrangement between Lotos and BP. In return, PKN Orlen will also sign a long-term contract to purchase between 200,000-337,000 b/d of crude from Aramco, which is an addition to the current contract for 100,000 b/d of Saudi crude that already exists. At a maximum, that figure will cover more than half of Poland’s crude oil requirements, but PKN Orlen has also said that it plans to direct some of that new supply to several of its other refineries elsewhere in Lithuania and the Czech Republic.

For Saudi Aramco, this is very interesting. While Aramco has always been a presence in Europe as a major crude supplier, its expansion plans over the past decade have been focused elsewhere. In the US, where it acquired full ownership of the Motiva joint venture from Shell in 2017. In doing so, it acquired control of Port Arthur, the largest refinery in North America, and has been on a petrochemicals-focused expansion since. In Asia, where Aramco has been busy creating significant nodes for its crude – in China, in India and in Malaysia (to serve the Southeast Asia and facilitate trade). And at home, where the focus has on expanding refining and petrochemical capacity, and strengthen its natural gas position. So this expansion in Europe – a mature market with a low ceiling for growth, even in Eastern Europe, is interesting. Why Poland, and not East or southern Africa? The answer seems fairly obvious: Russia.

The current era of relatively peaceful cooperation between Saudi Arabia and Russia in the oil sphere is recent. Very recent. It was not too long ago that Saudi Arabia and Russia were locked in a crude price war, which had devastating consequences, and ultimately led to the détente through OPEC+ that presaged an unprecedented supply control deal. That was through necessity, as the world faced the far ranging impact of the Covid-19 pandemic. But remove that lens of cooperation, and Saudi Arabia and Russia are actual rivals. With the current supply easing strategy through OPEC+ gradually coming to an end, this could remove the need for the that club (by say 2H 2022). And with Russia not being part of OPEC itself – where Saudi Arabia is the kingpin – cooperation is no longer necessary once the world returns to normality.

So the Polish deal is canny. In a statement, Aramco stated that ‘the investments will widen (our) presence in the European downstream sector and further expand (our) crude imports into Poland, which aligns with PKN Orlen’s strategy of diversifying its energy supplies’. Which hints at the other geopolitical aspect in play. Europe’s major reliance on Russia for its crude and natural gas has been a minefield – see the recent price chaos in the European natural gas markets – and countries that were formally under the Soviet sphere of influence have been trying to wean themselves off reliance from a politically unpredictable neighbour. Poland’s current disillusion with EU membership (at least from the ruling party) are well-documented, but its entanglement with Russia is existential. The Cold War is not more than 30 years gone.

For Saudi Aramco, the move aligns with its desire to optimise export sales from its Red Sea-facing terminals Yanbu, Jeddah, Shuqaiq and Rabigh, which have closer access to Europe through the Suez Canal. It is for the same reason that Aramco’s trading subsidiary ATC recently signed a deal with German refiner/trader Klesch Group for a 3-year supply of 110,000 b/d crude. It would seem that Saudi Arabia is anticipating an eventual end to the OPEC+ era of cooperative and a return to rivalry. And in a rivalry, that means having to make power moves. The PKN Orlen deal is a power move, since it brings Aramco squarely in Russia’s backyard, directly displacing Russian market share. Not just in Poland, but in other markets as well. And with a geopolitical situation that is fragile – see the recent tensions about Russian military build-up at the Ukrainian borders – that plays into Aramco’s hands. European sales make up only a fraction of the daily flotilla of Saudi crude to enters international markets, but even though European consumption is in structural decline, there are still volumes required.

How will Russia react? Politically, it is on the backfoot, but its entrenched positions in Europe allows it to hold plenty of sway. European reservations about the Putin administration and climate change goals do not detract from commercial reality that Europe needs energy now. The debate of the Nord Stream 2 pipeline is proof of that. Russian crude freed up from being directed to Eastern Europe means a surplus to sell elsewhere. Which means that Russia will be looking at deals with other countries and refiners, possibly in markets with Aramco is dominant. That level of tension won’t be seen for a while – these deals takes months and years to complete – but we can certainly expect that agitation to be reflected in upcoming OPEC+ discussions. The club recently endorsed another expected 400,000 b/d of supply easing for January. Reading the tea leaves – of which the PKN Orlen is one – makes it sound like there will not be much more cooperation beyond April, once the supply deal is anticipated to end.

End of Article

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Market Outlook:

-       Crude price trading range: Brent – US$86-88/b, WTI – US$84-86/b

-       Crude oil benchmarks globally continue their gain streak for a fifth week, as the market bounces back from the lows seen in early December as the threat of the Omicron virus variant fades and signs point to tightening balances on strong consumption

-       This could set the stage for US$100/b oil by midyear – as predicted by several key analysts – as consumption rebounds ahead of summer travel and OPEC+ remains locked into its gradual consumption easing schedule 

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