Brent crude oil spot prices are expected to average $67/bbl this year, which is $3/bbl lower than forecast last month in the US Energy Information Administration’s Short-Term Energy Outlook.
In this month’s STEO, EIA reports expecting Brent to remain at $67/bbl in 2020. EIA’s lower Brent price path for this year reflects rising uncertainty about global oil demand growth.
Brent spot prices averaged $71/bbl in May, largely unchanged from April and almost $6/bbl lower than the price in May 2018. However, Brent prices fell sharply in recent weeks, reaching $62/bbl on June 5.
EIA expects that crude oil prices will increase from current levels by yearend. It forecasts that Brent prices will average $68/bbl in this year’s fourth quarter because of inventory withdrawals during the summer, lower-than-expected production from the Organization of Petroleum Exporting Countries, and the expected increase in demand for light, sweet crude oil ahead of the implementation of low sulfur bunker fuel regulations in January 2020. EIA expects that prices will remain near that level in 2020 based on its forecast of relatively balanced global oil markets next year.
World oil demand, supply
Both China and the US issued tariffs on one other. In addition, expected industrial activity, as measured by the manufacturing Purchasing Managers’ Index (PMI), declined across several countries in May, and America’s manufacturing PMI fell to its lowest level since 2009.
These developments are contributing to concerns that economic growth could be lower than market participants’ expectations, which would cause oil demand growth to also be lower than expected, EIA said.
EIA expects global oil demand to rise by 1.2 million b/d this year, which is 200,000 b/d lower than the May forecast. EIA also expects demand in 2020 to increase by 1.4 million b/d, about 100,000 b/d lower than the previous forecast.
Declining crude oil production in Venezuela and Iran, as well as Saudi Arabian’s over-compliance with the agreed-upon production cuts, pushed crude oil output among members of the Organization of Petroleum Exporting Countries to 29.9 million b/d in May—the lowest for any month since July 2014.
In addition, production shut-ins in Russia related to contamination of the Druzhba crude oil pipeline have emerged. The market effect of these reductions has been compounded by planned maintenance on crude oil production platforms in the North Sea, where crude oil grades are in many cases substitutable for the disrupted Russian barrels.
In this month’s STEO, EIA forecasts global oil production to increase just 190,000 b/d this year, with the production growth from the US offset by the decline from OPEC.
Despite the recent demand uncertainties, EIA still expects a need for inventory withdrawals to meet demand given its forecast of near-term global crude oil production.
In this month’s report, EIA forecasts global oil inventories will decline by 300,000 b/d this year and then increase by 300,000 b/d in 2020. EIA forecasts that global oil inventory withdrawals in this year’s second and third quarters will average 200,000 b/d and 600,000 b/d, respectively.
US oil, gas production
Annual US crude oil production reached a record 11 million b/d in 2018. EIA forecasts that US production will increase by 1.4 million b/d this year and by 900,000 b/d in 2020, with 2020 production averaging 13.3 million b/d.
Despite EIA’s expectation for slowing growth, its forecast for this year would be the second-largest annual growth on record (following 1.6 million b/d in 2018), and the 2020 forecast would be the fifth-largest growth on record.
For the latest summer driving season, which extends from April through September, EIA forecasts that US regular gasoline retail prices will average $2.76/gal, down from an average of $2.85/gal last summer. The lower forecast gasoline prices primarily reflect EIA’s expectation of lower crude oil prices this summer.
The Henry Hub natural gas spot price averaged $2.64/MMbtu in May, almost unchanged from April. EIA expects strong growth in US gas production to put downward pressure on prices this year.
EIA expects Henry Hub spot gas prices will average $2.77/MMbtu this year, down 38¢ from 2018. EIA expects gas prices in 2020 will again average $2.77/MMbtu.
EIA forecasts that US dry gas production will average 90.6 bcfd this year, up 7.2 bcfd from 2018. EIA expects gas production will continue to rise in 2020, albeit at a slower rate, averaging 91.8 bcfd next year.
Gas exports averaged 9.9 bcfd in 2018, and EIA forecasts that they will rise by 2.5 bcfd this year and by 2.9 bcfd in 2020. Rising exports reflect increases in LNG exports as new facilities come online. Rising gas exports are also the result of an expected increase in pipeline exports to Mexico.
EIA estimates that gas inventories ended March at 1.2 tcf, 15% lower than levels from a year earlier and 28% lower than the 5-year (2014–18) average. EIA forecasts that gas storage injections will outpace the previous 5-year average during the April-through-October injection season and that inventories will reach almost 3.8 tcf at the end of October, which would be 17% higher than October 2018 levels and about equal to the 5-year average.
