Crude Oil Report
The December Short-Term Energy Outlook (STEO) remains subject to heightened levels of uncertainty because responses to COVID-19 continue to evolve. Reduced economic activity related to the COVID-19 pandemic has caused changes in energy demand and supply patterns in 2020 and will continue to affect these patterns in the future. U.S. gross domestic product (GDP) declined by 4.4 percent in the first half of 2020 from the same period a year ago. GDP began rising in the third quarter of 2020, and this STEO assumes it will grow by 3.1 percent annually in 2021 from 2020. The U.S. macroeconomic assumptions in this outlook are based on forecasts by IHS Markit completed in early November.
Brent crude oil spot prices averaged $43 per barrel (b) in November, up $3/b from the average in October. Brent prices increased in November in part because of news about the viability of multiple COVID-19 vaccines, along with market expectations that the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) would delay or limit production increases planned for January 2021.
The U.S. Energy Information Administration (EIA) expects that Brent prices will average $49/b in 2021, up from an expected average of $43/b in the fourth quarter of 2020. The forecast for higher crude oil prices next year reflects the EIA’s expectation that while inventories will remain high, they will decline with rising global oil demand and restrained OPEC+ oil production. The EIA forecasts Brent prices will average $47/b in the first quarter of 2021 and rise to an average of $50/b by the fourth quarter. The first quarter 2021 average is $5/b more than forecast in last month’s STEO, and the fourth quarter average is $1/b more. The higher expected first quarter prices reflect steeper expected global oil inventory draws as a result of the December 3 OPEC+ decision to limit its previously planned production increases in January 2021. The EIA expects high global oil inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices through much of 2021.
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Natural Gas Report
In November, the Henry Hub natural gas spot price averaged $2.61 per million British thermal units (MMBtu), up from the October average of $2.39/MMBtu. Price increases last month were moderated by significantly warmer-than-normal temperatures, which reduced residential space heating demand for natural gas despite many remaining at home in response to the pandemic. The U.S. Energy Information Administration (EIA) expects Henry Hub spot prices to reach a monthly average of $3.10/MMBtu in January 2021, which is down from the forecast January average price of $3.42/MMBtu in last month’s STEO. Although the EIA still expects prices to increase in the coming months because of rising space heating demand and rising U.S. liquefied natural gas (LNG) exports amid declining U.S. natural gas production, the lower January price forecast reflects higher forecast storage levels this winter compared with last month’s forecast. The EIA expects that monthly average spot prices will average $3.01/MMBtu in 2021, which is up from the forecast average of $2.07/MMBtu for 2020.
The EIA expects that total U.S. consumption of natural gas will average 83.4 billion cubic feet per day (Bcf/d) in 2020, down two percent from 2019. The decline in total U.S. consumption reflects warmer temperatures in 2020 compared with 2019 that lowered residential space heating demand for natural gas despite many staying home in response to the pandemic. The EIA expects residential demand in 2020 to average 12.9 Bcf/d (down 0.8 Bcf/d from 2019) and commercial demand in 2020 to average 8.6 Bcf/d (down 1.0 Bcf/d from 2019). The EIA forecasts industrial consumption will average 22.5 Bcf/d in 2020 (down 0.5 Bcf/d from 2019) as a result of reduced manufacturing activity. The EIA expects total U.S. natural gas consumption will average 79.4 Bcf/d in 2021, a 4.8% decline from 2020. The forecast decline in 2021 results from rising natural gas prices that lower forecast natural gas demand in the electric power sector.
We hope this forecast summary has been helpful. You can download this month’s full Natural Gas Report in the following formats: