In its August Short-Term Energy Outlook, the US Energy Information Administration revised its average 2021 Brent crude oil price outlook to $68.71/bbl, $0.07/bbl (0.1%) lower than the July STEO, while the price forecast for 2022 is $0.60/bbl (0.9%) lower at $66.04/bbl, based on concerns about future demand and lower crude oil prices in late July and early August.
On July 18, OPEC and its alliance (OPEC+) decided to ease production cuts by 400,000 b/d each month, beginning in August 2021. The agreement also included adjustments to the baseline crude production levels of some OPEC+ members, including Saudi Arabia, Russia, and the UAE, to take effect in May 2022 (OGJ Online, July 19, 2021). Meantime, rising cases of the COVID-19 Delta variant present additional downside price risk due to potentially lower demand for petroleum.
Brent crude oil spot prices averaged $75/bbl in July, up $2/bbl from June and up $25/bbl from end 2020. Brent prices have been rising this year as result of steady draws on global oil inventories, which averaged 1.8 million b/d during first-half 2021 and remained at almost 1.4 million b/d in July. EIA expects Brent prices will remain near current levels for the remainder of 2021, averaging $72/bbl from August through November. However, in 2022, EIA expects that continuing growth in production from OPEC+ and accelerating growth in US tight oil production—along with other supply growth—will outpace decelerating growth in global oil consumption and contribute to Brent prices declining to an average of $66/bbl in 2022.
EIA estimates that 98.8 million b/d of petroleum and liquid fuels were consumed globally in July, an increase of 6 million b/d from July 2020 but 3.4 million b/d less than in July 2019. EIA forecasts global consumption of petroleum and liquid fuels to average 97.6 million b/d for all of 2021, which is a 5.3 million b/d increase from 2020. EIA also forecasts that global consumption of petroleum and liquid fuels will increase by 3.6 million b/d in 2022 to average 101.2 million b/d.
US gasoline consumption averaged 8.6 million b/d in first-half 2021, up from 8.3 million b/d in second-half 2020 but below the 9.3 million b/d in second-half 2019. EIA’s latest estimates show that gasoline consumption in May through July was higher than it had previously expected. Growth in employment and increasing mobility have led to rising gasoline consumption so far in 2021. In this STEO, EIA forecasts US gasoline consumption to average 8.8 million b/d in 2021, up from 8 million b/d in 2020. EIA expects the trend of rising employment and mobility to continue into next year, and as a result, gasoline consumption is forecast to average almost 9 million b/d in 2022. However, EIA’s assumption that a relatively high share of the workforce will continue working from home next year compared with before the pandemic keeps forecast gasoline consumption below the 2019 level of 9.3 million b/d.
US regular gasoline retail prices averaged $3.14/gal in July, the highest monthly average price since October 2014. Recent gasoline price increases reflect rising crude oil prices and rising wholesale gasoline margins, amid relatively low gasoline inventories. EIA expects that prices will average $3.12/gal in August before falling to $2.82/gal, on average, in fourth-quarter 2021. The expected drop in retail gasoline prices reflects EIA’s forecast that gasoline margins will decline from elevated levels, as is typical in the US during the second half of the year.
EIA now forecasts OPEC crude oil production will average 26.5 million b/d in 2021, up from 25.6 million b/d in 2020. OPEC crude oil production in the forecast rises from 25 million b/d in April to an average of 27.1 million b/d in third-quarter 2021. EIA’s expectation of rising OPEC production is primarily based on its assumption that OPEC will raise production through end 2021 in line with targets it announced on July 18. OPEC crude oil production is forecast to rise to an average of 28.7 million b/d in 2022.
EIA’s most recent monthly data show US crude oil production was 11.2 million b/d in May. Production is expected to be relatively flat through October before rising in November and December and throughout 2022. Forecast US crude oil production for 2022 averages 11.8 million b/d, up from 11.1 million b/d in 2021.
Natural gas
In July, the natural gas spot price at Henry Hub averaged $3.84/MMbtu, which is up from the June average of $3.26/MMbtu. EIA expects the Henry Hub spot price will average $3.71/MMbtu in third-quarter 2021 and $3.42/MMbtu for all of 2021, which is up from the 2020 average of $2.03/MMbtu. Higher natural gas prices this year primarily reflect two factors: growth in LNG exports and rising domestic natural gas consumption for sectors other than electric power. In 2022, EIA expects the Henry Hub price will average $3.08/MMbtu amid rising US natural gas production.
US consumption of natural gas is forecast to average 82.5 bcfd in 2021, down 1% from 2020. US natural gas consumption declines in the forecast, in part, because electric power generators switch to coal from natural gas as a result of rising natural gas prices. In 2021, residential and commercial natural gas consumption combined will rise by 1.2 bcfd from 2020 and industrial consumption will rise by 0.2 bcfd from 2020. Rising natural gas consumption in sectors other than the electric power results from expanding economic activity and colder winter temperatures in 2021 compared with 2020. EIA expects US natural gas consumption will average 83.8 bcfd in 2022.
Estimated US natural gas inventories ended July 2021 at almost 2.8 tcf, which is 6% lower than the 5-year (2016–20) average for this time of year. More natural gas was withdrawn from storage during the winter of 2020–21 than the previous 5-year average, largely as a result of the colder-than-average February temperatures that constrained natural gas production while it increased consumption. EIA forecasts that inventories will end the 2021 injection season (end of October) at 3.6 tcf, which would be 4% below the 5-year average.
Dry natural gas production is expected to average 92.9 bcfd in the US during second-half 2021—up from 91.4 bcfd in first-half 2021—and then rise to 94.9 bcfd in 2022, driven by natural gas and crude oil prices, which EIA expects to remain at levels that will support enough drilling to sustain production growth.
