Crude Oil Report
All market outlooks are subject to many risks; however, the April edition of the Energy Information Administration (EIA) Short-Term Energy Outlook is subject to heightened levels of uncertainty. This is because the impacts of the 2019 novel coronavirus (COVID-19) on energy markets are still evolving. The COVID-19 pandemic has caused significant changes in energy fuel supply and demand patterns. Crude oil prices, in particular, have fallen significantly since the beginning of 2020, largely driven by the economic contraction caused by COVID-19 and a sudden increase in crude oil supply following the suspension of previously agreed upon production cuts among the Organization of the Petroleum Exporting Countries (OPEC) and partner countries. Similar uncertainties persist across the EIA outlook for other energy sources, including natural gas and electricity. Despite recent news of OPEC+ emergency meetings within the next few days to discuss production levels, without an agreement actually in place, the EIA assumes no re-implementation of an OPEC+ agreement during the forecast period. If there is ultimately an agreement, this forecast will incorporate that information into its ensuing release.
The EIA forecasts that the United States will return to being a net importer of crude oil and petroleum products in the third quarter of 2020 and remain a net importer in most months through the end of the forecast period. This is a result of higher net imports of crude oil and lower net exports of petroleum products. Net crude oil imports are expected to increase because as U.S. crude oil production declines, there will be fewer barrels available for export. On the petroleum product side, net exports will be lowest in the third quarter of 2020, when U.S. refinery runs are expected to decline significantly.
Brent crude oil prices averaged $32/barrel (b) in March, a decrease of $24/b from the average in February and the lowest monthly average since January 2016. The EIA forecasts Brent crude oil prices will average $33/b in 2020, $10/b lower than in last month’s STEO and down from an average of $64/b in 2019. The EIA expects prices will average $23/b during the second quarter of 2020 before increasing to $30/b during the second half of the year. The EIA forecasts that average Brent prices will rise to an average of $46/b in 2021, $10/b lower than forecast last month, as a return to declining global oil inventories puts upward pressure on prices.
The EIA estimates global petroleum and liquid fuels consumption averaged 94.4 million barrels per day (b/d) in the first quarter of 2020, a decline of 5.6 million b/d from the same period in 2019. The EIA expects global petroleum and liquid fuels demand will decrease by 5.2 million b/d in 2020 from an average of 100.7 million b/d last year before increasing by 6.4 million b/d in 2021. Lower global oil demand growth for 2020 in the April STEO reflects growing evidence of significant disruptions to global economic activity along with reduced expected travel globally because of COVID-19.
We hope this forecast summary has been helpful. You can download this month’s full Fuel Projection Report in the following formats:
Natural Gas Report
In March, the Henry Hub natural gas spot price averaged $1.74 per million British thermal units (MMBtu). Warmer-than-normal temperatures in March reduced demand for space heating and put downward pressure on prices. The Energy Information Administration (EIA) forecasts that prices will begin to rise at the end of the second quarter of 2020 as U.S. natural gas production declines and natural gas use for power generation increases the demand for natural gas. The EIA forecasts that Henry Hub natural gas spot prices will average $2.11/MMBtu in 2020 and then increase in 2021, reaching an annual average of $2.98/MMBtu because of lower natural gas production compared to 2020.
The EIA expects residential consumption of natural gas to average 12.9 billion cubic feet per day (Bcf/d) in 2020, down 5.8% from the 2019 average primarily because of warmer-than-normal weather in the first quarter. Similarly, the EIA expects commercial consumption of natural gas to average 9.0 Bcf/d in 2020, a decrease of 7.1%, as a result of warm weather and the slowing economy. The EIA forecasts industrial natural gas consumption to average 22.9 Bcf/d in 2020, about the same as in 2019. The industrial forecast is down from the previously expected 6.5% growth in the March STEO, as less manufacturing activity in 2020 weakens the growth potential for industrial natural gas consumption.
U.S. dry natural gas production set a record in 2019, averaging 92.2 Bcf/d. The EIA forecasts dry natural gas production will average 91.7 Bcf/d in 2020, with monthly production falling from an estimated 94.4 Bcf/d in March to 87.5 Bcf/d in December. Natural gas production declines the most in the Appalachian and Permian regions. In the Appalachian region, low natural gas prices are discouraging producers from engaging in natural gas-directed drilling, and in the Permian region, low oil prices reduce associated gas output from oil-directed wells. In 2021, forecast dry natural gas production averages 87.5 Bcf/d, rising in the second half of 2021 in response to higher prices.
We hope this forecast summary has been helpful. You can download this month’s full Natural Gas Report in the following formats: