Brent crude oil spot prices averaged $74/bbl in June, a decrease of almost $3/bbl from the May average.
In its July Short-Term Energy Outlook, the US Energy Information Administration forecasts Brent crude oil spot prices will average $73/bbl in the second half of 2018 and will average $69/bbl in 2019. EIA expects West Texas Intermediate (WTI) crude oil prices will average $6/bbl lower than Brent prices in the second half of 2018 and $7/bbl lower in 2019.
“Forecast global liquid fuels balances indicate a looser oil market in the second half of 2018 and through the end of 2019 compared with the tight oil market conditions that prevailed for 2017 and the first half of 2018,” EIA said.
Although global petroleum and other liquid fuels inventories declined by an average of 0.5 million b/d in 2017, EIA expects inventories to be relatively unchanged in 2018 and to increase by 0.6 million b/d in 2019. The inventory builds forecast for the second half of 2018 through 2019 will put modest downward pressure on oil prices and contribute to Brent crude oil prices averaging $73/bbl for the second half of 2018 and $69/bbl in 2019.
The forecast inventory builds in 2019 are mainly the result of expected liquid fuels production growth in US, Brazil, Canada, and Russia. EIA forecasts that these countries will provide 2.2 million b/d out of the 2.4 million b/d of total global supply growth in 2019. Supply growth of this magnitude outpaces EIA’s forecast for global liquid fuels consumption growth of 1.7 million b/d for 2019.
However, inventory levels that have fallen below the 5-year (2013– 17) average and a forecast of low spare capacity among members of the Organization of the Petroleum Exporting Countries (OPEC) create conditions for possible price increases if additional supply disruptions occur or if forecast supply growth does not materialize.
In 2019, EIA forecasts that the US will average nearly 12 million b/d of crude oil production. If the forecast holds, that would make the US the world’s leading producer of crude.
EIA expects that OPEC crude oil output will decrease by less than 100,000 b/d on average in 2019. The small decline in forecast OPEC production in 2019 reflects crude oil production increases from some producers that mostly make up for expected declines of more than 1 million b/d in Iran and Venezuela combined. Venezuela’s production is expected to continue to fall through the forecast period as the financial situation of the state-owned Petróleos de Venezuela and the Venezuelan government becomes more precarious.
Global consumption of petroleum and other liquid fuels grew by 1.6 million b/d in 2017, reaching an average of 98.5 million b/d for the year. EIA expects consumption growth to average 1.7 million b/d in 2018 and in 2019. Non-OECD countries, led by China and India, are contributing significantly to increases in the global consumption of petroleum and other liquid fuels.
US liquid fuel consumption
The US is also experiencing strong liquid fuels consumption growth, as the economy continues to expand. Total US petroleum and other liquid fuels consumption is forecast to average 20.4 million b/d in 2018, an increase of 470,000 b/d (2.4%) from the 2017 level. Consumption is forecast to grow by 330,000 b/d (1.6%) in 2019. Higher consumption of hydrocarbon gas liquids (HGL) is the primary reason for the growth.
EIA forecasts that US motor gasoline consumption will decline slightly in 2018 and then grow in 2019, increasing by 0.5% from 2018 levels. If EIA’s projected growth in 2019 is realized, it would be the highest level of annual average gasoline consumption on record, slightly surpassing the previous record set in 2017.
EIA expects that monthly average gasoline prices peaked in May and will decline gradually in the coming months to an average of $2.83/gal in September.
Net crude oil and petroleum product imports into the US have continued historic declines in 2018, and EIA’s outlook is that those declines will continue in 2019. Net imports are forecast to decrease from 3.7 million b/d in 2017 to 2.4 million b/d in 2018, a year-over-year drop of 35%.
The July STEO keeps the forecast for US crude oil and petroleum product net imports for 2019 unchanged from June’s outlook. At an expected 1.6 million b/d next year, the US will reach net import levels not seen since 1958.
US natural gas
Total US natural gas consumption averaged 74.2 bcfd in 2017 and is forecast to increase by 7% to 79.7 bcfd in 2018 before slightly decreasing to 79.6 bcfd in 2019. In 2018, increases in total natural gas consumption are mainly attributable to higher electric power sector use, which is forecast to increase by 10% from 2017 levels. The 2018 increase also reflects higher residential and commercial demand due to a colder first quarter.
The July outlook continues to forecast record production for US dry natural gas in 2018 and 2019. “Assuming the forecast holds, we will see production top 81 bcfd in 2018, and another increase that will push production up to roughly 84 bcf in 2019,” EIA said.
Growth in production enables LNG and pipeline exports from US to expand. Net natural gas pipeline imports from Canada continue to decrease in EIA’s July outlook. New infrastructure and increased exports from the Appalachia basin to the US Midwest and Canada are behind much of the decrease.
The Henry Hub natural gas spot price averaged $2.97/MMbtu in June. EIA expects Henry Hub natural gas spot prices to average $2.99/MMbtu in 2018 and $3.04/MMbtu in 2019.
NYMEX futures and options contract values for October 2018 delivery that traded during the five-day period ending July 5, 2018, suggest a range of $2.37/MMbtu to $3.59/MMbtu encompasses the market expectation for October Henry Hub natural gas prices at the 95% confidence level.
