Global oil supply will rise by 1.6 million b/d in 2020 and global oil consumption will rise by 1.3 million b/d, the US Energy Information Administration (EIA) said in its January 2020 Short-Term Energy Outlook, contributing to global oil inventories rising at a pace of 300,000 b/d for the year.
Supply growth in 2020 is led by countries outside the Organization of the Petroleum Exporting Countries (OPEC), particularly the US, Norway, Brazil, and Canada. EIA expects non-OPEC producers will increase oil supply by 2.6 million b/d in 2020, which will more than offset forecast supply declines of 1.0 million b/d from OPEC members.
In the first half of 2020, EIA expects global oil inventory to build by 500,000 b/d. However, oil balances in EIA’s forecast begin to tighten in mid-2020, and in 2021, as global oil supply growth slows.
In 2021, non-OPEC supply growth slows to 900,000 b/d, driven by a decelerating pace of growth in US tight oil. EIA expects OPEC supply to add another 100,000 b/d of growth in 2021, bringing total forecast global supply growth to 1.0 million b/d for that year.
EIA forecasts global oil consumption growth will average 1.4 million b/d in 2021, and with consumption growth outpacing supply growth, EIA expects inventories to draw by 200,000 b/d. These draws contribute to EIA’s forecast that Brent prices will rise to an average of $68/bbl in 2021. This compares to $64/bbl in 2019 and $65/bbl predicted for 2020.
EIA expects West Texas Intermediate (WTI) crude oil prices will average about $5.50/bbl lower than Brent prices through 2020 and 2021, compared with an average WTI discount of about $7.35/bbl in 2019.
Global oil consumption
Preliminary data and estimates indicate that global liquid fuels consumption grew by 800,000 b/d in 2019. EIA forecasts that consumption will rise by 1.3 million b/d in 2020 and by 1.4 million b/d 2021.
The expected rise in consumption growth from 2019 results from a forecast of rising global gross domestic product (GDP). Based on forecasts from Oxford Economics, EIA assumes global oil-weighted GDP growth will rise from 1.9% in 2019 to 2.4% in 2020 and 3.0% in 2021.
Oil demand will rise in 2020 due to the newly completed petrochemical plants in China, the US, and Russia that use liquefied petroleum gases (LPG) as feedstock, and additionally, due to the new International Maritime Organization (IMO) rules on sulfur content of fuel used by ocean-going vessels.
However, absent the increase in LPG consumption and IMO 2020, EIA’s forecast for liquid fuels consumption growth would be lower in 2020.
Countries outside the Organization for Economic Cooperation and Development (OECD) continue to drive demand growth in the forecast. Non-OECD liquid fuels consumption growth accounts for 1.2 million b/d of the forecast global growth in both 2020 and 2021; China and India represent about half of all global growth in the forecast. EIA forecasts that China’s consumption will increase by 500,000 b/d in both 2020 and 2021.
OECD oil consumption in the forecast grows by 100,000 b/d in both 2020 and 2021. US is the main contributor to this growth. Europe’s liquid fuels consumption will decline slightly in 2020 and then remain flat in 2021. Japan is expected to see liquid fuels consumption continue to decline in both years.
Non-OPEC oil supply
In the latest STEO, EIA estimates that non-OPEC oil supply increased by 2.0 million b/d in 2019. Production growth of 1.6 million b/d in US accounted for more than 80% of the 2019 supply growth.
EIA expects non-OPEC oil production will rise by 2.6 million b/d in 2020 and by 900,000 b/d in 2021. Forecast growth in the US contributes 1.7 million b/d and 600,000 b/d, respectively, in each year. Brazil provides another 300,000 b/d in 2020 and 200,000 b/d in 2021. Norway contributes 400,000 b/d of growth in 2020, and then its production growth slows to less than 100,000 b/d in 2021. EIA expects Canada’s total production will increase by almost 200,000 b/d in 2020 and 2021.
EIA currently forecasts that Russia’s production levels in 2020 and 2021 will be similar to production in 2019 based on the assumption that the agreement between Russia and OPEC to restrain production will continue throughout the forecast period.
Mexico will contribute to the largest declines among non-OPEC producers, though Mexico’s production declines slow from 200,000 b/d in 2019 to less than 100,000 b/d in 2020 and 2021.
OPEC supply
On Dec. 6, 2019, OPEC and a group of other oil producers announced they were deepening the production cuts originally announced in December 2018. The group is now targeting production that is 1.7 b/d lower than in October 2018, compared with the former target reduction of 1.2 million b/d. OPEC announced that the cuts would remain in effect through the end of March 2020.
However, EIA assumes that OPEC will limit production through all of 2020 and 2021 to target relatively balanced global oil markets.
As a result of production restraint from most OPEC members and continuing production declines in Iran and Venezuela, EIA forecasts that OPEC crude oil production will average 29.2 million b/d in 2020, down 600,000 b/d from 2019. In 2021, forecast OPEC crude oil production increases by 100,000 b/d.
EIA expects that crude oil production in the Neutral Zone shared between Saudi Arabia and Kuwait, which has been offline since 2014, will begin to return to the market in the second half of 2020 and increase to full production levels in 2021. However, EIA assumes that when the Neutral Zone fields start producing, production at other fields will be reduced, and overall OPEC production will be unaffected.
Due to lower expected condensate output in Iran, EIA estimates that OPEC non-crude oil liquids production will fall from 5.4 million b/d in 2019 to 5.0 million b/d in 2021 and remain flat in 2021.
EIA expects that OPEC surplus crude oil production capacity, which averaged 2.0 million b/d in 2019, will increase to 2.4 million b/d in 2020 and then to 2.5 million b/d in 2021. This estimate does not include additional capacity that may be available in Iran but is offline because of US sanctions on Iran’s oil sales.
OECD petroleum inventories
EIA estimates that OECD commercial crude oil and other liquid fuels inventories were 2.91 billion bbl at the end of 2019, equivalent to about 62 days of consumption. EIA expects OECD inventories rise to 2.95 billion bbl at the end of 2020, staying at about the same level at the end of 2021.
US oil consumption
EIA forecasts that total US petroleum and other liquid fuels consumption will average 20.6 million b/d in 2020, an increase of 160,000 b/d (0.8%) from the 2019 level. Forecast consumption growth slows to 70,000 b/d (0.3%) in 2020.
Increased forecast consumption of hydrocarbon gas liquids (HGL) is the primary reason for the growth. HGL consumption increased by an estimated 150,000 b/d (5.0%) in 2019, and EIA expects that it will increase by 170,000 b/d (5.3%) in 2020 and by 120,000 b/d (3.6%) in 2021. Ethane consumption is expected to increase by 290,000 b/d in 2020 as outages at existing petrochemical steam cracking plants come back online and several new plants ramp up operations.
Motor gasoline consumption averaged 9.3 million b/d in 2019. EIA forecasts US gasoline consumption will stay near that level in 2020 and then fall by 50,000 b/d (0.6%) in 2021.
Distillate fuel consumption is forecast to increase by 40,000 b/d (1.1%) in 2020 and remain flat in 2021, averaging about 4.1 million b/d in both years. The consumption growth in 2020 is driven by assumed US real gross domestic product (GDP) growth of 2.0% in 2020 and 1.8% in 2021. The flat distillate consumption growth from 2020 to 2021 reflects a decline in heating oil consumption in 2021. The diesel fuel consumption growth also reflects a small expected shift to marine diesel for bunkering purposes as a result of the IMO new regulations.
EIA forecasts US jet fuel consumption will grow by 30,000 b/d (1.6%) in 2020 and by 10,000 b/d (0.4%) in 2021, reaching almost 1.8 million b/d. Growth in the demand for air travel is a result, in part, of expectations of rising disposable incomes.
US oil production
EIA estimates that annual average US crude oil production reached a new record of 12.2 million b/d in 2019, up 1.3 million b/d from 2018. EIA forecasts US crude oil production to average 13.3 million b/d in 2020 and 13.7 million b/d in 2021. More production from the Lower 48 states’ onshore regions, especially the Permian region, drives the forecast increase.
Slowing crude oil production growth in the forecast results from a decline in drilling rigs over the past year that EIA expects will continue into 2020 and 2021. Despite the decline in the number of rigs, EIA forecasts production will continue to grow as rig efficiency and well-level productivity rises.
EIA estimates that onshore crude oil production in the Lower 48 states averaged 9.9 million b/d in 2019, up from 8.8 million b/d in 2018. In 2020, EIA expects Lower 48 production will increase by almost 1.0 million b/d and rise by another 400,000 b/d in 2021. Almost all of the Lower 48 production growth can be attributed to production from tight oil formations within the Permian region in Texas and New Mexico.
EIA expects crude oil production in the Gulf of Mexico will average 2.0 million b/d in 2020, an increase of 100,000 b/d over 2019 levels. Production in 2021 is expected to stay flat at 2.0 million b/d.
EIA forecasts HGL production at natural gas processing plants will increase from an estimated 4.8 million b/d in 2019 to 5.4 million b/d in 2020 and to 5.5 million b/d in 2021. Ethane will contribute more than two-thirds of the 700,000 b/d HGL production growth between 2019 and 2021.
