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EIA: Brent to average $59 in 4th quarter
Agency sees downward price pressure as inventories rise in first half of 2020, with Brent falling to $57 per barrel by 2nd quarter
Kristen Nelson Petroleum News
The Brent crude oil spot price averaged $63 per barrel in September, up $4 from August, the U.S. Energy Information Administration said Oct. 8 in its October Short-Term Energy Outlook. This September’s average was down $16 from September 2018.
EIA said Brent prices began September at $61 per barrel and rose to $68 after the attacks in Saudi Arabia disrupted that country’s crude oil production.
The agency said spot prices have fallen since, reaching $58 per barrel Oct. 4, as Saudi Arabia restored production “and concerns about oil demand based on the condition of the global economy rose.”
“EIA expects global energy prices to decrease through 2020,” EIA Administrator Dr. Linda Capuano said in a statement, “as indicators suggest that GDP growth will slow worldwide. The October Short-Term Energy Outlook revised the forecast for average 2020 Brent crude oil spot prices down $2 to $60 per barrel, despite last month’s higher prices following the attacks on Saudi oil installations. The events in Saudi Arabia and other supply risks are balancing downward price pressures resulting from decreasing demand,” Capuano said.
She said Saudi Arabia was able to increase its production relatively quickly after the attacks in mid-September and their production is estimated to have averaged 8.5 million barrels per day in September, but the decline was still enough to push production from the Organization of the Petroleum Exporting Countries to its lowest level since November 2003.
Drop in 2nd quarter EIA said it is forecasting Brent spot prices to average $59 per barrel in the fourth quarter of this year, then fall to $57 per barrel by the second quarter of 2020, $5 per barrel lower than forecast in September, with downward oil price pressure expected “to emerge in the coming months as global oil inventories rise during the first half of 2020.”
The agency expects balances to tighten later in 2020 with Brent rising to an average of $62 per barrel in the second half of the year.
“EIA’s October forecast recognizes a higher level of oil supply disruption risk than previously assumed,” the agency said, “more-than-offset by increasing uncertainty about economic and oil demand growth in the coming quarters, resulting in a lowered oil price forecast.”
OPEC production is estimated to have averaged 28.2 million bpd in September, down 1.6 million bpd from August, and down 4 million bpd from September 2018, with the year-over-year decrease primarily the result of falling production in Iran and Venezuela and the recent disruption in Saudi Arabia.
OPEC production is forecast to average 29.8 million bpd this year, down 2.1 million bpd from 2018, and 29.6 million bpd in 2020.
US production down in July EIA said U.S. crude oil production averaged 11.8 million bpd in July, the latest month for which data are available, down 300,000 bpd from June as a result of Gulf of Mexico disruption caused by Hurricane Barry.
“U.S. crude oil production remained relatively flat during the first seven months of 2019 because of disruptions to Gulf of Mexico platforms and slowing growth in tight oil production,” the agency said, with tight oil production growing more slowly because of relatively flat oil prices and slowing growth in Lower 48 well productivity. EIA said it expects growth to pick up as Gulf of Mexico production returns and pipelines come online linking the Permian basin with Gulf Coast refining and export centers.
The agency is forecasting U.S. production growth to level off in 2020 “because of falling crude oil prices in the first half of the year and continuing declines in well-level productivity.”
EIA is forecasting U.S. crude oil production to average 12.3 million bpd this year, up 1.3 million bpd from 2018, and rising by 900,000 bpd in 2020 to an annual average of 13.2 million bpd.
Natural gas EIA said the Henry Hub natural gas spot price averaged $2.56 per million British thermal units in September, up 34 cents from August, the first monthly price increase since March. The agency is forecasting Henry Hub to average $2.43 per million Btu in the fourth quarter, down more than $1 from the fourth quarter of 2018, and then rising to an average of $2.52 per million Btu next year.
“Although the United States remains on track to set new records for dry natural gas production in 2019 and 2020, EIA believes that low natural gas prices will cause production to start to level off going into 2020,” Capuano said. “The October STEO expects production to increase in 2019 by about 10%, exceeding 91 billion cubic feet per day, year-over-year, while 2020 will experience a smaller increase to more than 93 billion cubic feet per day, if the forecast holds,” she said.
EIA said prices have fallen this year because strong supply growth enabled natural gas inventories to build more than average during the April through October injection season.
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