Brent crude oil spot prices averaged $64/bbl in February, up $5/bbl from January and about $1/bbl lower than the same time last year.
Declining estimated crude oil production for February from both the Organization of Petroleum Exporting Countries and the US contributed to a drawdown of 1.4 million b/d in global liquid fuels inventories, according to the latest Short-Term Energy Outlook from the US Energy Information Administration.
Notwithstanding the strong draw in February, EIA forecasts that global liquid fuels inventories will rise by 200,000 b/d in 2019 and by 400,000 b/d in 2020. The March STEO’s expected inventory builds in both years are lower than those forecast in last month’s STEO, reflecting lower expected crude oil production from OPEC and the US.
Saudi Arabia cut crude oil production by more than expected in February, with production averaging 10 million b/d of oil. EIA assumes that joint OPEC and non-OPEC crude oil production cuts will remain in place through yearend.
US crude oil production averaged 11.9 million b/d in February, down slightly from the January average, according to EIA estimates. EIA forecasts that US crude oil production will average 12.3 million b/d in 2019 and 13 million b/d in 2020, with most of the growth coming from the Permian basin.
“OPEC and US production levels, as well as the pace of global oil demand growth, present considerable uncertainty to oil market balances and price expectations. Based on the current forecast, however, EIA expects global inventory builds and rising OPEC spare capacity will limit significant upward oil price pressures in 2019 and in 2020,” EIA said.
In its latest outlook EIA forecasts Brent spot prices will average $63/bbl in 2019 and $62/bbl in 2020 compared with an average of $71/bbl in 2018.
EIA expects that West Texas Intermediate crude oil prices will average $9/bbl lower than Brent prices in this year’s first half before the discount gradually falls to $4/bbl in the fourth quarter and throughout 2020.
Net imports of US crude oil and petroleum products fell from an average of 3.8 million b/d in 2017 to an average of 2.3 million b/d in 2018. EIA forecasts that net imports will continue to fall to an average of 1 million b/d in 2019 and to an average net export level of 100,000 b/d in 2020. In the fourth quarter of 2020, EIA forecasts that the US will be a net exporter of crude oil and products by about 900,000 b/d.
Price spread
Crude oil prices in the Permian region have increased since the beginning of the year. Two recent pipeline capacity additions reduced some of the takeaway constraints that developed in the second half of 2018. The WTI Midland crude oil price spreads with WTI Cushing and Magellan East Houston crude oil began narrowing in late January and settled at 15¢/bbl and -$7/bbl on Mar. 7, respectively.
The Sunrise Expansion project added an estimated 120,000 b/d by early 2019, increasing takeaway capacity to Cushing. In addition, the Seminole-Red natural gas liquids pipeline was repurposed to deliver crude oil from the Permian region to the US Gulf Coast and began operating ahead of schedule, adding an estimated 200,000 b/d of takeaway capacity by April.
Although EIA expects rising Permian production to face takeaway constraints again in the coming months, it forecasts that the recent capacity additions will prevent price spreads from widening back to the levels reached in the second and third quarters of 2018. EIA expects that new pipelines coming online in the third quarter will alleviate the remaining takeaway constraints.
Natural gas
The Henry Hub natural gas spot price averaged $2.69/MMbtu in February, down 42¢/MMbtu from January.
EIA expects strong growth in US gas production to put downward pressure on prices in 2019. EIA expects Henry Hub gas spot prices will average $2.85/MMbtu in 2019, down 30¢/MMbtu from 2018.
EIA forecasts that dry gas production will average 90.7 bcfd in 2019, up 7.4 bcfd from 2018. EIA expects gas production will continue to rise in 2020 to an average of 92 bcfd.
