EIA Revises Oil Price Outlook Downward

Natural gas will likely experience ongoing volatility

The U.S. Energy Information Agency (EIA) released a report saying that it expects Brent spot prices will average US$61 in 2019 and that West Texas Intermediate (WTI) crude oil prices will average about US$7/b lower than Brent prices next year.

Both are US$11/b lower than forecast in November.

The EIA also noted that Brent crude oil spot prices averaged US$65 per barrel (b) in November, down US$16/b from October, the largest monthly average price decline since December 2014, according to the U.S. Energy Information Agency (EIA).

“Market uncertainty during November appears to have contributed to levels of price volatility for Brent and West Texas Intermediate crude oils not seen in several years,” EIA administrator Lisa Capuano said in a statement.

The downward revision comes even afte OPEC announced that it would cut production in 2019. EIA said it expects that the magnitude of the recent price declines combined with the OPEC production cuts will bring 2019 supply and demand numbers largely into balance, which EIA forecasts will keep prices near current levels in the coming months.

The EIA estimates that U.S. crude oil production averaged 11.5 million barrels per day (b/d) in November, up 150,000 b/d from October levels because of platforms resuming normal operations after hurricane-related outages in October. EIA expects that U.S. crude oil production will average 10.9 million b/d in 2018, up from 9.4 million b/d in 2017, and will average 12.1 million b/d in 2019.

EIA forecasts total global liquid fuels inventories will increase by about 0.3 million b/d in 2018 and by 0.2 million b/d in 2019. Global liquid fuels production is forecast to increase by 1.4 million b/d in 2019. EIA expects production growth in the United States to be partially offset by declining production elsewhere, notably in the Organization of the Petroleum Exporting Countries (OPEC), where EIA forecasts that liquid fuels production will decline by 0.9 million b/d in 2019. EIA expects global liquid fuels consumption to increase by 1.5 million b/d in 2019, with growth largely coming from China, the United States, and India.

The ultra-low sulfur diesel (ULSD)–Brent crack spread approached a four-year high in mid-November of 52 cents/gal and averaged near the top of its five-year range in November. U.S. distillate inventories remain 10% lower than the five-year average, and the increasingly tight market was met by colder than
normal weather.

In natural gas, the Henry Hub natural gas spot price averaged US$4.15/million British thermal units (MMBtu) in November, up US$0.87/MMBtu from the October average. Cold temperatures and low inventory levels contributed to the increase in price, the EIA said. Despite low inventory levels, EIA expects strong growth in U.S. natural gas production to put downward pressure on prices in 2019. EIA expects Henry Hub natural gas spot prices to average US$3.11/MMBtu in 2019, down 6 cents from the 2018 average and down from a forecast average price of US$3.88/MMBtu in the fourth quarter of 2018.

EIA estimates that U.S. natural gas storage inventories were 3.0 trillion cubic feet (Tcf) at the end of November, which was 19% lower than the five-year (2013–17) average for the end of November. The EIA forecasts that dry natural gas production will average 83.3 billion cubic feet per day (Bcf/d) in 2018, up 8.5 Bcf/d from 2017. Both the level and volume growth of natural gas production in 2018 would establish new records. EIA expects natural gas production will continue to rise in 2019 to an average of 90.0 Bcf/d.

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