EIA forecasts Brent prices to average $53/bbl over 2021, 2022

Jan. 12, 2021
In the 2021 first issue of Short-Term Energy Outlook, the US EIA forecasts that global oil consumption and production will rise during 2021 and 2022, and global oil inventories will continue to decline during much of that period.

In the 2021 first issue of Short-Term Energy Outlook, the US Energy Information Administration (EIA) forecasts that global oil consumption and production will rise during 2021 and 2022, and global oil inventories will continue to decline during much of that period. EIA now expects Brent crude oil prices to average $53/bbl in both 2021 and 2022. In the previous month’s STEO, EIA expected that Brent prices will average $49/bbl in 2021.

Global oil consumption

Preliminary data and estimates indicate that global liquid fuels consumption declined by 9.0 million b/d in 2020, the largest annual decline in EIA data going back to 1980. EIA forecasts that consumption will rise by 5.6 million b/d in 2021 and by 3.3 million b/d in 2022.

The expected rise in the consumption of liquid fuels results from rising global gross domestic product (GDP) as well as a move toward pre-pandemic patterns of travel, particularly in late 2021 and in 2022. Based on data and forecasts from Oxford Economics, EIA assumes global GDP declined by 3.9% in 2020 and that it will grow by 5.4% in 2021 and by 4.3% in 2022. Despite EIA’s forecast of growing consumption in 2021, global consumption of petroleum and other liquid fuels does not return to 2019 levels in the forecast until early 2022. EIA’s forecast assumes that business activity and travel will generally continue to increase throughout the year.

However, rising COVID-19 infections during the fourth quarter of 2020 slowed the recovery in oil consumption. EIA estimates that fourth-quarter 2020 global liquid fuels consumption averaged 95.4 million b/d, up only 600,000 b/d from the September level. EIA expects the recent rise in COVID-19 infections, the re-imposition of some restrictions, and ongoing changes to consumer behaviors because of the pandemic will continue to affect global oil demand in first-half 2021.

Despite uncertainty, economic activity in the forecast returns to pre-pandemic levels in 2021 partly because of vaccine rollouts. As a result, the pace of oil consumption growth will, to a significant extent, rely on the manufacture and distribution of effective vaccines on a global scale, EIA said.

EIA forecasts oil demand will grow faster in 2021 as the economy and oil consumption are less affected by travel and other responses to COVID-19 than it was in 2020. Forecast oil demand continues to grow, but at a more moderate pace in 2022, as the effects of 2020’s restrictions and behavioral changes fade and as oil demand is increasingly driven by economic growth. On a percentage basis, EIA expects oil consumption growth to be fairly even between the countries in the Organization for Economic Cooperation and Development (OECD) and non-OECD countries.

Demand by product

The recovery in petroleum demand will also differ by petroleum product. Among petroleum products, jet fuel consumption fell particularly sharply in 2020, and EIA assumes that global jet fuel consumption will remain below its 2019 level through the end of 2022. EIA expects jet fuel consumption to return to pre-pandemic levels more quickly in China and the US than in most other regions.

Consumption of hydrocarbon gas liquids (HGL) will be greater than 2020 levels in 2021 and 2022. EIA expects petrochemical manufacturing activity will contribute to growth in HGL consumption in the forecast. This growth is primarily associated with light-feed petrochemical cracking capacity coming online in China and forecast growth in US HGL consumption.

World oil production, inventory

IEA forecasts that crude oil production from the Organization of the Petroleum Exporting Countries (OPEC) will average 27.2 million b/d in 2021, up from an estimated 25.6 million b/d in 2020. Forecast growth in output reflects OPEC’s announced increases to production targets and continuing rise in Libya’s production.

On Jan. 5, 2021, OPEC and partner countries (OPEC+) announced that they will maintain the previously agreed upon January 2021 production increase of 500,000 b/d. The latest OPEC+ agreement also calls for production increases from Russia and Kazakhstan in February and March. However, additional voluntary cuts by Saudi Arabia for February and March result in lower overall OPEC+ production in early 2021.

EIA forecasts that OPEC crude oil production will rise by 1.1 million b/d in 2022.

For 2020 as a whole, non-OPEC production declined by 2.3 million b/d from 2019 levels, according to EIA data. More than 90% of this decline came from the three largest non-OPEC producers: US, Russia, and Canada. Non-OPEC production was its lowest for the year during the second quarter, but production began rising in the third quarter as global oil demand increased.

EIA expects production of non-OPEC petroleum and other liquid fuels to increase by 1.2 million b/d in 2021. In 2022, EIA expects non-OPEC production to rise by 2.3 million b/d, surpassing 2019 production levels. Canada and Brazil lead forecast non-OPEC production growth in 2021. Russia and the US will lead growth in 2022.

Global liquid fuels inventories rose at a rate of 6.5 million b/d in the first half of 2020 before declining at a rate of 2.4 million b/d in the second half of 2020. EIA forecasts global inventories will continue to fall in the forecast, declining at a rate of 600,000 b/d in 2021 and 500,000 b/d in 2022.

US oil

According to EIA estimates, US crude oil production fell from the 2019 record level of 12.2 million b/d to 11.3 million b/d in 2020. EIA expects production to again decline in 2021, averaging 11.1 million b/d before increasing to an annual average of 11.5 million b/d in 2022, as prices and drilling conditions become more favorable.

EIA expects Lower 48 crude oil production to decline through February 2021 because declining legacy well production will offset production from new wells. For US tight oil production, EIA analysis shows that changes in oil prices affect changes in crude oil production with about a six-month lag. EIA expects that recent increases in the oil price and in active drilling rigs will contribute to Lower48 production beginning to grow in second-quarter 2021. Despite the steady increase in Lower48 crude oil production from second-quarter 2021 forward, EIA expects that average 2021 Lower48 production will be 8.9 million b/d, or 3% lower than 2020 production levels.

US liquid fuels consumption in 2020 averaged 18.1 million b/d, down 2.5 million b/d (12%) from 2019 consumption. EIA forecasts US liquid fuels consumption will rise to 19.5 million b/d in 2021 and then to 20.5 million b/d in 2022 (almost equal to the 2019 level).

After falling by 3.5% in 2020, IHS Markit forecasts that US real gross domestic product (GDP) will increase by 4.2% in 2021 and 3.8% in 2022.