EIA: July Brent prices drop on reduced market risk

In the August issue of its Short-Term Energy Outlook (STEO), the US Energy Information Administration maintains its 2014 US liquid fuels consumption forecast at 18.88 million b/d as projected in July compared with 18.89 million b/d in 2013. The 2015 consumption is set at 18.98 million b/d, 30,000 b/d higher than projected in last month’s STEO.

EIA forecasts that motor gasoline consumption will rise 40,000 b/d in 2014 and then fall 10,000 b/d in 2015 as improving fuel economy in new vehicles increasingly offsets highway travel growth. Consumption of distillate fuel will rise 140,000 b/d and 70,000 b/d in 2014 and 2015, respectively, which is 20,000 b/d and 10,000 b/d higher, respectively, than projected in last month’s outlook.

After a 150,000 b/d increase in hydrocarbon gas liquids consumption, EIA projects a 60,000 b/d decline in 2014, with propane consumption returning to 2012 levels as higher propane prices reduce the use of propane as a petrochemical feedstock. As new propane dehydrogenation units, which produce propylene, are expected to come online in the second half of 2015, HGL consumption is forecast to increase by 100,000 b/d for the year.

Total US crude oil production is forecast to increase from an estimated 7.5 million b/d in 2013 to 8.5 million b/d in 2014 and 9.3 million b/d in 2015. With 11 projects starting this year, oil production from the Gulf of Mexico is expected to increase by 190,000 b/d in 2014.

Global oil market balance

EIA’s world oil balance is virtually unchanged from last month’s STEO. With surplus crude oil production capacity averaging 2.1 million b/d in 2014 and 2.7 million b/d in 2015, the balance is expected to remain relatively tight.

Global unplanned supply disruptions remain elevated and averaged 3.2 million b/d in July, of which Libya accounted for more than one third. Iraq’s southern production and export volumes continue to be unaffected despite the ongoing unrest in northern and western Iraq.

EIA projects world petroleum and other liquids supply to increase by 1.5 million b/d in 2014 and by another 1.3 million b/d in 2015, with most of the growth coming from countries outside of the Organization of the Petroleum Exporting Countries. Global consumption is forecast to rise 1.1 million b/d in 2014 and 1.4 million b/d in 2015.

OECD commercial oil inventories totaled 2.55 billion bbl at yearend 2013, equivalent to roughly 55 days of consumption. Projected OECD oil inventories rise to 2.57 billion bbl at yearend, EIA said.

Oil prices

The market's perception of reduced risk to Iraqi oil exports and news regarding increasing Libyan oil exports contributed to a drop in the Brent crude oil spot price to an average of $107/bbl in July, $5/bbl lower than the June average.

EIA projects Brent crude oil prices to average $108/bbl in 2014, $1/bbl lower than in last month’s STEO, and $105/bbl in 2015. The West Texas Intermediate crude oil price discount to Brent is now expected to average $8/bbl in 2014 and $9/bbl in 2015, reductions of $1/bbl respectively, from last month’s STEO.

“Driven in large part by record levels of demand for crude oil by US refineries over the last month, the spot price discount for WTI crude oil to dated Brent crude oil was cut nearly in half since June to $3/bbl in July,” said Adam Sieminski, EIA chief economist, adding “the WTI to Brent discount is expected to increase to an average of $10/bbl in the fourth quarter of this year as refinery runs decrease heading into the refinery turnaround season and US crude oil supplies continue to grow.”

There monthly outlook projects regular gasoline retail prices to average $3.50/gal and $3.46/gal in 2014 and 2015, compared with $3.51/gal in 2013.

“US drivers could find more savings at the pump in the months ahead as gasoline prices are expected to fall through the end of the year to an average of $3.30/gal in December,” Sieminski said.

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