In its March Short-Term Energy Outlook (STEO), the US Energy Information Administration (EIA) forecast Brent crude oil prices will average $61/bbl in 2021 and $58.5/bbl in 2022, compared to previous forecasts of $53/bbl and $55/bbl, respectively, in last month’s STEO.
Brent crude oil spot prices averaged $62/bbl in February, up $8/bbl from January’s average and up $7/bbl from February 2020. Rising Brent prices in February continued to reflect expectations of rising oil demand as both COVID-19 vaccination rates and global economic activity have increased, combined with ongoing petroleum supply limitations by the Organization of the Petroleum Exporting Countries and partner countries (OPEC+). In addition, disruptions to petroleum supply from extreme winter weather in the US (notably in Texas) put upward pressure on crude oil prices during February.
EIA expects OPEC crude oil production will average 25.3 million b/d in April, which is similar to expected production for March and down 1.6 million b/d from EIA’s forecast for April OPEC production in last month’s STEO. EIA expects OPEC crude oil production will rise to 26.6 million b/d in May. This increase reflects Saudi Arabia ending voluntary cuts of 1.0 million b/d, along with the relaxation of cuts that were extended through April at the Mar. 4 OPEC+ meeting. This forecast assumes OPEC will produce 27.9 million b/d on average in second-half 2021, as OPEC+ generally increases crude oil output to supply rising global oil consumption.
The OPEC+ extension of existing supply cuts through April added significantly to near-term upward oil price pressures. Following the meeting, the Brent crude oil spot price settled at $67/bbl on Mar. 4, up 4% from the day before. EIA expects Brent prices will average between $65-$70/bbl during March and April, more than $10/bbl above EIA’s expectation last month. EIA continues to expect downward crude oil price pressures will emerge in the coming months as the oil market becomes more balanced. Brent crude oil prices in the forecast average $58/bbl in second-half 2021.
EIA’s forecast of declining crude oil prices and a more balanced oil market reflect global oil supply surpassing oil demand during second-half 2021. Although EIA expects inventories to fall by 1.2 million b/d in first-half 2021, increases in global oil supply will contribute to inventories rising by almost 400,000 b/d in second-half 2021 and a mostly balanced market in 2022. However, the forecast depends heavily on future production decisions by OPEC+, the responsiveness of US tight oil production to higher oil prices, and the pace of oil demand growth, among other factors. EIA expects Brent prices will average $58.5/bbl in 2022.
EIA estimates that the world consumed 95.9 million b/d of petroleum and liquid fuels in February, which is down 1.6 million b/d from February 2020. If confirmed by final consumption data, the 1.6 million b/d decline would represent the smallest year-over-year decline since the COVID-19 outbreak began affecting oil consumption in January 2020. EIA forecasts that global consumption of petroleum and liquid fuels will average 97.5 million b/d for all of 2021, which is up by 5.3 million b/d from 2020. EIA forecasts that consumption will increase by another 3.8 million b/d in 2022 to average 101.3 million b/d.
EIA estimates that US crude oil production averaged 10.4 million b/d in February, which is down 500,000 b/d from estimated January production. Most of the decline reflects the cold temperatures that affected much of the country, particularly Texas.
Unlike the relatively winterized oil production infrastructure in northern areas of the country, infrastructure in Texas, such as wellheads, gathering lines, and processing facilities, are more susceptible to the effects of extremely cold weather. Following the freeze-offs, EIA forecasts crude oil production will rise to almost 11 million b/d in March.
EIA expects US crude oil production will average 11.1 million b/d in 2021 and 12.0 million b/d in 2022. EIA’s current forecast for US crude oil production in 2022 is 500,000 b/d higher than in last month’s STEO because of higher expected crude oil prices.
