In its November Short-Term Energy Outlook (STEO), the US Energy Information Administration (EIA) forecasts US crude oil production to average 11.9 million b/d for 2022. This forecast is 200,000 b/d (1.4%) higher than in the October STEO.
“The higher forecast is the result of our increased expectations for crude oil production in both the Permian basin and Federal Offshore Gulf of Mexico (GoM). We raised our expectation of production in the Permian Basin as a result of higher expected drilling productivity. We raised our expectation of GoM production because we now expect some projects to come online sooner than previously forecast,” said EIA.
According to EIA data, US crude oil production averaged an estimated 11.4 million b/d in October, up from 10.7 million b/d in September as a result of production increases following disruptions from Hurricane Ida. EIA forecasts US crude oil production will rise to 11.6 million b/d in December. Annual production will average 11.1 million b/d in 2021.
Oil demand, prices
Brent crude oil spot prices averaged $84/bbl in October, up $9/bbl from September and up $43/bbl from October 2020. Crude oil prices have risen over the past year as result of steady draws on global oil inventories, which averaged 1.9 million b/d during the first three quarters of 2021. In addition to sustained inventory draws, prices increased after OPEC+ announced in early October—and reaffirmed on Nov. 4—that the group would keep current production targets unchanged.
EIA expects Brent prices will remain near current levels for the rest of 2021, averaging $82/bbl in fourth-quarter 2021. In 2022, EIA expects that growth in production from OPEC+, US tight oil, and other non-OPEC countries will outpace slowing growth in global oil consumption and contribute to Brent prices declining from current levels to an annual average of $72/bbl.
EIA also estimates that 98.9 million b/d of petroleum and liquid fuels was consumed globally in October, an increase of 4.5 million b/d from October 2020 but 1.9 million b/d less than in October 2019. Meantime, EIA revises up its forecast for consumption of petroleum and liquid fuels for fourth-quarter 2021, partially as a result of fuel switching from natural gas to petroleum in the electric power sector in parts of Asia and Europe. This fuel switching is a result of increases in natural gas prices in Asia and Europe. Furthermore, several countries, such as Thailand, Israel, Australia, and the US, eased international border and travel restrictions in early November, which could support more fuel demand for air travel in some locations this winter.
“We forecast that global consumption of petroleum and liquid fuels will average 97.5 million b/d for all of 2021, which is a 5.1 million b/d increase from 2020. We forecast that global consumption of petroleum and liquid fuels will increase by 3.3 million b/d in 2022,” said EIA.
Crude oil price spread
EIA also noted in the latest STEO that, the price for crude oils with high levels of sulfur declined relative to those with lower levels, as a result of both rising crude oil exports from OPEC and high natural gas prices that may be affecting the costs of certain refinery operations, among other factors.
OPEC has been increasing production and exports during second-half 2021. Crude oil production from many OPEC countries tend be a sour grade. The increase in OPEC exports has added to global supplies of sour crude oils. Additionally, sour crude oils must first be treated with hydrogen to meet low-sulfur fuel specifications and to avoid damage to refinery units. Because natural gas is used in hydrogen production, the recently high global natural gas prices have contributed to higher refinery feedstock costs, particularly in Europe and Asia. When the cost of natural gas increases, sour crude oils become more costly to run. Higher treatment costs of sour crude oil have likely made them less economic for refiners as global natural gas prices have increased, contributing to higher demand for sweeter crude (lower sulfur) oils such as Magellan East Houston (MEH) and lower demand for more sour crude oils, such as Mars.