Crude Oil Report
The November 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 compared with the same period a year ago. GDP began rising in the third quarter of 2020, and this STEO assumes it will grow by 3.7 percent from 2020 to 2021. The U.S. macroeconomic assumptions in this outlook are based on forecasts by IHS Markit.
The U.S. Energy Information Administration (EIA) estimates that an average of 95.3 million barrels per day (b/d) of petroleum and liquid fuels were consumed globally in October. Liquid fuels consumption was down 5.9 million b/d from October 2019, but it was up from both the third-quarter 2020 average of 94.1 million b/d and the second-quarter 2020 average of 85.3 million b/d. The EIA forecasts that global consumption of petroleum and liquid fuels will average 92.9 million b/d for all of 2020, down by 8.6 million b/d from 2019, before increasing by 5.9 million b/d in 2021.
The EIA reported that 10.6 million b/d of crude oil was produced in the United States in August (the most recent month for which historical data is available), down 0.4 million b/d from July. Production fell in August mainly because hurricanes disrupted production from the U.S. Gulf of Mexico. The EIA reported that U.S. crude oil production in the Gulf of Mexico averaged 1.2 million b/d in August, down 0.5 million b/d from July. Since reaching a two-and-a-half year low of 10.0 million b/d in May, when producers curtailed wells, U.S. crude oil production has increased mainly because tight oil operators have brought wells back online in response to rising prices. The EIA estimates that production will rise to 11.2 million b/d in November. However, The EIA expects U.S. crude oil production to generally decline to an average of 11.0 million b/d in the second quarter of 2021 because new drilling activity will not generate enough production to offset declines from existing wells. The EIA expects drilling activity to rise later in 2021, contributing to U.S. crude oil production reaching 11.3 million b/d in the fourth quarter of 2021. On an annual average basis, the EIA expects U.S. crude oil production to fall from 12.2 million b/d in 2019 to 11.4 million b/d in 2020 and 11.1 million b/d in 2021.
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Natural Gas Report
In October, the Henry Hub natural gas spot price averaged $2.39 per million British thermal units (MMBtu), up from an average of $1.92/MMBtu in September. Higher natural gas spot prices reflected stronger demand for liquefied natural gas (LNG) exports as LNG terminals increased liquefaction following hurricane-related disruptions in August and September. The U.S. Energy Information Administration (EIA) expects Henry Hub spot prices to rise to a monthly average of $3.42/MMBtu in January 2021 because of rising domestic demand for natural gas for space heating, rising U.S. LNG exports, and reduced production. The EIA expects that monthly average spot prices will remain higher than $3.00/MMBtu throughout 2021, averaging $3.14/MMBtu for the year, up from a forecast average of $2.14/MMBtu in 2020.
The EIA estimates that total U.S. working natural gas in storage ended October at almost 4.0 trillion cubic feet (Tcf), 5 percent more than the five-year (2015–19) average and the second highest end-of-October level on record. However, because the EIA forecasts less U.S. natural gas production this winter than last winter, the EIA forecasts that inventory draws will outpace the five-year average during the heating season (October–March) and end March 2021 at 1.5 Tcf, which would be 16 percent lower than the 2016–20 average.
The EIA expects that total U.S. consumption of natural gas will average 83.7 billion cubic feet per day (Bcf/d) in 2020, down 1.7 percent from 2019. The decline in total U.S. consumption reflects less heating demand in early 2020, contributing to residential demand in 2020 averaging 13.2 Bcf/d (down 0.6 Bcf/d from 2019) and commercial demand in 2020 averaging 8.8 Bcf/d (down 0.9 Bcf/d from 2019). The EIA forecasts industrial consumption will average 22.5 Bcf/d in 2020, down 0.6 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 5.2 percent decline from 2020. The expected decline in 2021 is the result of rising natural gas prices that will reduce demand for natural gas 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: