Crude Oil Report
Although all market outlooks are subject to many risks, the May edition of the Energy Information Administration (EIA) Short-Term Energy Outlook (STEO) remains subject to heightened levels of uncertainty because the effects on energy markets of mitigation efforts related to the 2019 novel coronavirus disease (COVID-19) are still evolving. Reduced economic activity related to the COVID-19 pandemic has caused significant changes in energy supply and demand patterns. Crude oil prices, in particular, have fallen significantly since the beginning of 2020, largely driven by reduced oil demand because of COVID-19 mitigation efforts. Despite the April agreement between the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) to reduce production levels beyond the end of the STEO forecast period, crude oil prices have remained at some of their lowest levels in more than 20 years. Uncertainties persist across the EIA’s outlook for other energy sources, including natural gas, electricity, coal, and renewables.
Brent crude oil prices averaged $18 per barrel (b) in April, a decrease of $13/b from the average in March. The EIA forecasts Brent crude oil prices will average $34/b in 2020, 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 $32/b during the second half of the year. The EIA forecasts that Brent prices will rise to an average of $48/b in 2021, $2/b higher than forecast last month, as the EIA expects that declining global oil inventories next year will put upward pressure on oil prices.
The EIA estimates global petroleum and liquid fuels consumption averaged 94.1 million barrels per day (b/d) in the first quarter of 2020, a decline of 5.8 million b/d from the same period in 2019. The EIA expects global petroleum and liquid fuels demand will average 92.6 million b/d in 2020, a decrease of 8.1 million b/d from last year, before increasing by 7.0 million b/d in 2021. Lower global oil demand growth for 2020 in the May STEO reflects growing evidence of disruptions to global economic activity along with reduced expected travel globally as a result of restrictions related to COVID-19.
The EIA has revised its current forecast of domestic crude oil production down from the April STEO as a result of lower crude oil prices. The EIA forecasts U.S. crude oil production will average 11.7 million b/d in 2020, down 0.5 million b/d from 2019. In 2021, the EIA expects U.S. crude oil production to decline further by 0.8 million b/d. If realized, the 2020 production decline would mark the first annual decline since 2016. U.S. crude oil production has not declined for two years in a row since the 17- year period of declines beginning in 1992 and running through 2008. Typically, price changes affect production after about a six-month lag. However, current market conditions will likely reduce this lag as many producers have already announced plans to reduce capital spending and drilling levels.
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 April, the Henry Hub natural gas spot price averaged $1.73 per million British thermal units (MMBtu). The Energy Information Administration (EIA) forecasts that natural gas prices will generally rise through the rest of 2020 as U.S. production declines. The EIA forecasts that Henry Hub natural gas spot prices will average $2.14/MMBtu in 2020 and then increase in 2021, reaching an annual average of $2.89/MMBtu. The EIA expects prices to rise largely because of lower natural gas production compared with 2020.
The EIA expects total consumption of natural gas to average 81.7 billion cubic feet per day (Bcf/d) in 2020, down 3.9% from the 2019 average primarily because of lower industrial sector consumption of natural gas. The EIA forecasts industrial natural gas consumption to average 21.3 Bcf/d in 2020, down 7.1% from 2019 as a result of lower expected manufacturing activity. This expected decline is lower than the 0.3% decline forecast in the April Short-Term Energy Outlook (STEO) because of large downward revisions to the macroeconomic forecast in the May STEO.
The EIA forecasts that U.S. liquefied natural gas exports will average 5.8 Bcf/d in the second quarter of 2020 and 4.8 Bcf/d in the third quarter of 2020. U.S. liquefied natural gas exports are expected to decline through the end of the summer as a result of lower expected global demand for natural gas.
We hope this forecast summary has been helpful. You can download this month’s full Natural Gas Report in the following formats: