Following Saudi Arabia's Sept. 5 announcement to extend its voluntary 1 million b/d production cut to yearend, the US Energy Information Administration (EIA) foresees a reduction in global oil inventories over the period. The development is expected to exert upward pressure on oil prices.
In its September issue Short-Term Energy Outlook (STEO), EIA predicts a 200,000 b/d decrease in global oil inventories in fourth-quarter 2023. EIA’s forecast also predicts that the Brent crude oil spot price will average $93/bbl in fourth-quarter 2023.
However, prices are projected to decline in 2024, averaging $88/bbl annually, as oil inventories start to accumulate. This inventory buildup in the upcoming year is primarily attributed to a slowdown in oil demand growth, increased non-OPEC oil production, and the conclusion of Saudi Arabia's voluntary production cuts, EIA said.
EIA forecasts global liquid fuels production will increase by 1.2 million b/d in 2023 despite recent voluntary decreases in production from OPEC+. Global production in EIA’s forecast increases by 1.7 million b/d in 2024. Non-OPEC production is the main driver of global production growth in the forecast, increasing by 2 million b/d in 2023 and 1.3 million b/d in 2024, led by the US, Brazil, Canada, and Guyana.
EIA expect Russia’s production will decline by 300,000 b/d on average this year and remain relatively unchanged in 2024. OPEC crude oil production will fall by 800,000 b/d in 2023 and increase by 400,000 b/d in 2024.
US motor gasoline consumption
In the latest STEO report, EIA has revised its US motor gasoline consumption forecast due to adjustments made by the US Census Bureau in its population estimates for the US.
In EIA’s September STEO forecast, the share of the US population that will be over 65 is 18.2% in 2024, up from the August STEO forecast of 18%. This seemingly small increase adds 700,000 individuals to the population of adults over 65.
These revisions reflect a decrease in the working-age population and an increase in the retirement-age population, which typically leads to reduced driving activity. Consequently, EIA’s updated population estimates have led to a downward adjustment in its vehicle miles traveled (VMT) forecast, directly impacting motor gasoline consumption.
EIA now projects that US gasoline consumption will average 8.9 million b/d in 2023 and 8.7 million b/d in 2024. Notably, the 2024 forecast has decreased by 200,000 b/d compared with EIA’s August STEO.
In EIA’s latest forecast, US liquid fuels consumption averages 20.1 million b/d in 2023, down 300,000 b/d from last month’s forecast. In addition to reduced gasoline consumption, this forecast incorporates the category changes EIA recently made, that reclassified natural gasoline and unfinished oils from product supplied to crude oil supply, to represent the use of these products more accurately.
US diesel crack spread
In the report, EIA also raised diesel price forecast because of higher-than-expected August diesel crack spreads (the price of a gallon of diesel minus the price of a gallon of crude oil) and expectations for lower distillate inventories in the fall.
Total distillate inventories in the US have been well below average since last year, and EIA currently estimates US distillate inventories will decline by about 11 million bbl in October, more than the average October draw from 2018–22 of nearly 8 million bbl, largely because of the maintenance.
In addition, seasonal increases in demand will also reduce distillate inventories. East Coast distillate demand tends to increase in the winter months because many households in the US Northeast use distillate heating oil, while Midwest distillate demand tends to increase in September and October because of agricultural demand associated with the harvest season.
