Crude Oil Report
Although revisions to the Energy Information Administration’s (EIA) forecasts in the June Short-Term Energy Outlook (STEO) are generally smaller than they have been in recent months, this forecast remains subject to heightened levels of uncertainty because mitigation and reopening efforts related to the 2019 novel coronavirus disease (COVID-19) continue to evolve. Reduced economic activity related to the COVID-19 pandemic has caused changes in energy supply and demand patterns in 2020, particularly for petroleum and other liquid fuels. Uncertainties persist across the EIA’s outlook for other energy sources, including natural gas, electricity, coal, and renewables.
Daily Brent crude oil spot prices averaged $29 per barrel (b) in May, up $11/b from the average in April. Oil prices rose in May as initial data show global oil demand was higher than the EIA had forecasted and as adherence to announced production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) was high. The EIA expects monthly Brent prices will average $37/b during the second half of 2020 and rise to an average of $48/b in 2021. The forecast of rising crude oil prices reflects expected declines in global oil inventories during the second half of 2020 and through 2021. The EIA expects high inventory levels and spare crude oil production capacity will limit upward price pressures in the coming months, but as inventories decline into 2021, those upward price pressures will increase.
The EIA forecasts that demand for global petroleum and liquid fuels will average 83.8 million barrels per day (b/d) in the second quarter of 2020, 16.6 million b/d lower than at the same time last year. Lower demand is the result of COVID-19-related shutdowns throughout much of the world. As stay-at-home orders are eased, the EIA expects liquid fuels consumption will rise to an average of 94.9 million b/d in the third quarter (down 6.7 million b/d year over year). The EIA forecasts that consumption of petroleum and liquid fuels globally will average 92.5 million b/d for all of 2020, down 8.3 million b/d from 2019, before increasing by 7.2 million b/d in 2021.
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Natural Gas Report
In May, the Henry Hub natural gas spot price averaged $1.75 per million British thermal units (MMBtu). The Energy Information Administration (EIA) forecasts that relatively low natural gas demand will keep spot prices lower than $2/MMBtu through August. However, the EIA expects prices will generally rise through the end of 2021. The EIA expects that natural gas price increases will be sharpest this fall and winter when they rise from an average of $2.06/MMBtu in September to $3.08/MMBtu in January. Despite the EIA’s forecast of record end-of-October storage levels, the EIA expects that rising demand heading into winter, combined with reduced production, will cause upward price pressures. The EIA forecasts that Henry Hub natural gas spot prices will average $2.04/MMBtu in 2020 and $3.08/MMBtu in 2021.
The EIA expects that total U.S. consumption of natural gas will average 81.9 billion cubic feet per day (Bcf/d) in 2020, down 3.6% from 2019. The decline primarily reflects less consumption in the industrial-sector, which the EIA forecasts will average 21.0 Bcf/d in 2020, down 8.7% from 2019 as a result of reduced manufacturing activity.
U.S. dry natural gas production set an annual record in 2019, averaging 92.2 Bcf/d. the EIA forecasts dry natural gas production will average 89.7 Bcf/d in 2020, with monthly production falling from 96.2 Bcf/d in November 2019 to 83.6 Bcf/d in March 2021, before increasing slightly. 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 crude oil prices reduce associated natural gas output from oil-directed wells. In 2021, the EIA’s forecast production of dry natural gas in the United States averages 85.4 Bcf/d. the EIA expects production to begin rising in the second quarter of 2021 in response to higher prices.
The EIA estimates that total U.S. working natural gas in storage ended May at almost 2.8 trillion cubic feet (Tcf), 18% more than the five-year (2015–19) average. In the forecast, inventories rise by 2.1 Tcf during the April-through-October injection season to reach more than 4.1 Tcf on October 31, which would be a record.
We hope this forecast summary has been helpful. You can download this month’s full Natural Gas Report in the following formats: