Crude Oil Report
The September Short-Term Energy Outlook (STEO) 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 demand and supply patterns in 2020. This STEO assumes U.S. gross domestic product declined by 4.6% in the first half of 2020 from the same period a year ago and will rise beginning in the third quarter of 2020, with year-over-year growth of 3.1% in 2021. The U.S. macroeconomic assumptions in this outlook are based on forecasts by IHS Markit.
Brent crude oil spot prices averaged $45 per barrel (b) in August, up $2/b from the average in July. Brent prices in August were up $26/b from the multiyear low monthly average price in April. The increase in oil prices has occurred as the U.S. Energy Information Administration (EIA) estimates global oil markets have shifted from global liquid fuels inventories building at a rate of 7.2 million barrels per day (b/d) in the second quarter to drawing at a rate of 3.7 million b/d in the third quarter. The EIA expects inventory draws in the fourth quarter of 3.1 million b/d before markets become relatively balanced in 2021, with forecast draws of 0.3 million b/d. Despite expected inventory draws in the coming months, the EIA expects high inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices. The EIA forecasts monthly Brent spot prices will average $44/b during the fourth quarter of 2020 and rise to an average of $49/b in 2021 as oil markets become more balanced.
U.S. regular gasoline retail prices averaged $2.18 per gallon (gal) in August, largely unchanged from the average in July but 44 cents/gal lower than at the same time last year. The EIA expects that gasoline prices will decrease through the rest of the year, falling to an average of $2.03/gal in December. Forecast U.S. regular gasoline retail prices average $2.16/gal in 2020 and $2.28/gal in 2021.
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Natural Gas Report
In August, the Henry Hub natural gas spot price averaged $2.30 per million British thermal units (MMBtu), up from an average of $1.77/MMBtu in July. Higher natural gas spot prices reflect rising demand for natural gas from the U.S. electric power sector as a result of warmer-than-normal temperatures during August and rising demand for U.S. liquefied natural gas (LNG) exports amid declining U.S. natural gas production. The Energy Information Administration (EIA) expects that rising domestic demand and demand for LNG exports heading into winter, combined with reduced production, will cause Henry Hub spot prices to rise to a monthly average of $3.40/MMBtu in January 2021. The EIA expects that monthly average spot prices will remain higher than $3.00/MMBtu for all of 2021, averaging $3.19/MMBtu for the year, up from a forecast average of $2.16/MMBtu in 2020.
The EIA expects that total U.S. consumption of natural gas will average 82.7 billion cubic feet per day (Bcf/d) in 2020, down 2.7% from 2019. The largest decline in consumption occurs in the industrial sector. The EIA forecasts industrial consumption will average 21.9 Bcf/d in 2020, down 1.0 Bcf/d from 2019 as a result of reduced manufacturing activity. The decline in total U.S. consumption also reflects lower heating demand in early 2020, contributing to residential and commercial demand in 2020 averaging 12.9 Bcf/d (down 0.8 Bcf/d from 2019) and 8.8 Bcf/d (down 0.8 Bcf/d from 2019), respectively. The EIA expects U.S. natural gas consumption will average 79.1 Bcf/d in 2021, a 4.3% decline from 2020. The expected decline is the result of rising natural gas prices that will reduce demand for natural gas in the electric power sector.
The EIA estimates that total U.S. working natural gas in storage ended August at 3.5 trillion cubic feet (Tcf), 13% more than the five-year (2015–19) average. In the forecast, the EIA expects inventories to reach almost 4.0 Tcf on October 31, which would be 6% more than the five-year average.
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