EIA: Harsh winter affected US heating expenditures, oil production

Worldwide liquids fuels consumption will increased by 1.2 million b/d this year and by 1.4 million b/d in 2015, according to the latest outlook from the US Energy Information Administration. In last month’s Short-Term Energy Outlook (STEO), EIA projected that global oil demand would climb by 1.3 million b/d in 2014 and 1.4 million b/d in 2015.

The outlook for this year sees countries outside of the Organization for Economic Cooperation and Development (OECD) accounting for all consumption growth in 2014 and nearly all of the growth in 2015. EIA expects lower OECD consumption in 2014, led by projected consumption declines in both Japan and Europe.

“China is expected to see the biggest jump in petroleum demand this year, with consumption increasing by 400,000 b/d. Japan and Europe are forecast to lead the decline in oil demand this year among industrialized countries as a group, with consumption falling by 150,000 b/d and 60,000 b/d, respectively,” EIA said.

Projected OPEC crude oil production will fall by about 500,000 b/d and 300,000 b/d in 2014 and 2015, respectively, as some OPEC countries, led by Saudi Arabia, reduce production to accommodate the non-OPEC supply growth.

“Unplanned crude oil supply disruptions among OPEC producers averaged more than 2.3 million b/d in February 2014, almost 100,000 b/d higher than the previous month. Libya continues to experience swings in its production, contributing to changes in the OPEC disruption estimate,” EIA said.

Non-OPEC production is forecast to increase by 1.8 million b/d this year and by 1.5 million b/d in 2015. The area with the most growth will be the US and Canada, where the combined production will climb by 1.3 million b/d this year and by 1.2 million b/d next year.

US oil market

During the beginning of October 2013 to the end of February 2014, US average heating degree days were 13% higher than last winter and 10% above the 10-year average, affecting mostly households in the Midwest that primarily use propane and those in the Northeast that rely on heating oil.

EIA’s current estimates for winter heating expenditures for homes heating with propane in the Midwest is $2,212, which is $759 higher than projected in October. The current estimate for average US expenditures for homes using heating oil is $2,243, $197 higher than projected in October STEO.

EIA expects US liquid fuels consumption to remain flat in 2014. Distillate fuel consumption rises 10,000 b/d, up 0.3% from 2013, the report said. In 2015, total liquid fuels consumption increases 100,000 b/d, driven primarily by increasing transportation demand for distillate fuel oil and industrial demand for hydrocarbon gas liquids.

On the supply side, EIA’s initial estimates for December 2013 and January 2014 US crude oil production have also been revised downward due to harsh winter conditions over the past few months.

“Bad weather conditions cut into US crude oil production this winter, but much of the production slowdown will be made up over the next few months by accelerated well completions. Crude oil production in the Bakken formation in North Dakota and Montana fell in December, but is expected to rebound to 1 million b/d this month,” EIA said.

EIA expects strong crude oil production growth, primarily concentrated in the Bakken, Eagle Ford, and Permian regions, continuing through 2015. Forecast production increases from an estimated 7.5 million b/d in 2013 to 8.4 million b/d in 2014 and 9.2 million b/d in 2015.

Crude oil, product prices

EIA expects strong US crude oil production growth will help reduce WTI prices to an average of $95/bbl this year.

“The startup of the new Cushing Marketlink pipeline to the Gulf Coast as well as strong refinery runs in the Midwest helped reduce oil inventories at the Cushing, Okla., storage hub to their lowest levels in 2 years,” EIA said.

Led by falling crude oil prices, the projected US annual average regular gasoline retail price, which fell from $3.63/gal in 2012 to an average of $3.51/gal in 2013, will continue to fall to $3.45/gal in 2014 and $3.37/gal in 2015. Diesel fuel prices, which averaged $3.92/gal in 2013, are projected to average $3.85/gal in 2014 and $3.78/gal in 2015.

Refining, natural gas

Over the next 2 years, US refining capacity and crude oil inputs to refineries are expected to increase as companies expand and build capacity to process the light crude oil from rising US production. Crude oil inputs to refineries should exceed the previous high in 2004 and reach 15.6 million b/d by 2015, according to EIA.

US natural gas inventories will end the heating season below 1 tcf for the first time since 2003 because of large withdrawals of gas this winter to meet high heating demand. EIA expects growing gas production and moderate demand from the electric power sector will allow for a record build in gas stocks during the April-September injection season.

EIA expects total gas consumption will average 71.3 bcfd in 2014, a drop of 0.1 bcfd from 2013, due to higher gas prices and declines in gas used for power generation. Gas-marketed production will increase an average 2.5% in 2014 and 1.1% in 2015, according to the outlook. Projected Henry Hub gas prices average $4.44/MMbtu in 2014 and $4.14/MMbtu in 2015, EIA said.

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