SHORT-TERM ENERGY OUTLOOK

[thackney]

SHORT-TERM ENERGY OUTLOOK
http://www.eia.gov/forecasts/steo/index.cfm
May 10, 2016

North Sea Brent crude oil prices averaged $42/barrel (b) in April, a $3/b increase from March. Improving economic data, growing supply disruptions, and falling U.S. crude oil production and rig counts contributed to the price increase.

Brent crude oil prices are forecast to average $41/b in 2016 and $51/b in 2017, $6/b and $10/b higher than forecast in last month's STEO, respectively. West Texas Intermediate (WTI) crude oil prices are forecast to average slightly less than Brent in 2016 and to be the same as Brent in 2017. However, the current values of futures and options contracts suggest high uncertainty in the price outlook. For example, EIA's forecast for the average WTI price in August 2016 of $42/b should be considered in the context of Nymex contract values for August 2016 delivery. These contracts traded during the five-day period ending May 5 (Market Prices and Uncertainty Report) suggest the market expects WTI prices to range from $32/b to $65/b (at the 95% confidence interval) in August 2016.

During the April-through-September summer driving season of 2016, U.S. regular gasoline retail prices are forecast to average $2.21/gallon (gal), 17 cents/gal higher than forecast in last month's STEO but 42 cents/gal lower than last summer. U.S. regular gasoline retail prices are forecast to average $2.08/gal in 2016 and $2.24/gal in 2017, 14 cents/gal higher and 24 cents/gal higher than forecast in last month's STEO, respectively.

U.S. crude oil production averaged 9.4 million barrels per day (b/d) in 2015. Production is forecast to average 8.6 million b/d in 2016 and 8.2 million b/d in 2017. The 2017 forecast is about 0.1 million b/d higher than forecast in the April STEO. EIA estimates that crude oil production for the month of April 2016 averaged 9.0 million b/d, which is 0.1 million b/d below the March 2016 level, and 0.7 million b/d below the 9.7 million b/d level reached in April 2015.

Natural gas working inventories were 2,625 billion cubic feet (Bcf) on April 29, which was 49% higher than a year earlier, and 47% higher than the previous five-year (2011-15) average for that week. April is typically the beginning of the inventory injection season, which runs through October. EIA projects natural gas inventories will be 4,158 Bcf at the end of October 2016, which would be the highest end-of-October level on record. Henry Hub spot prices are forecast to average $2.25/million British thermal units (MMBtu) in 2016 and $3.02/MMBtu in 2017, compared with an average of $2.63/MMBtu in 2015.

EIA estimates that global petroleum and other liquid fuels inventory builds will average 1.0 million b/d in 2016 and 0.2 million b/d in 2017.

Inventory builds are expected to continue through the first half of 2017, but at a generally decreasing rate. An inventory draw of 0.3 million b/d is expected in the third quarter of 2017. Lower inventory builds in this STEO compared with last month' s STEO mainly reflect revised historical rates of demand growth for 2015, along with the expectation of higher demand growth in 2016 and 2017.

EIA increased its estimates of historical and forecast global consumption for 2015–17 compared with the April STEO. Global consumption of petroleum and other liquid fuels is now estimated to have grown by 1.4 million b/d in 2015 (0.1 million b/d higher than previously estimated). Changes to global consumption mainly reflect upward revisions to 2015 growth in both China and India of 0.1 million b/d, which were partially offset by reductions to estimated consumption growth in Europe. EIA estimates that China's consumption grew by more than 0.4 million b/d in 2015, driven by increased use of gasoline, jet fuel, and hydrocarbon gas liquids (HGL), which more than offset decreases in diesel consumption. Increased use of HGL, in particular, had a large effect on consumption growth, where an increase in the number of propane dehydrogenation (PDH) plants led to an increased use of propane. Similarly, India's fuel consumption growth for 2015 was revised up to 0.3 million b/d (0.1 million b/d higher than previously estimated), mainly in transportation, coal mining, and industrial activities.

EIA now expects global consumption of petroleum and other liquid fuels to increase by 1.4 million b/d in 2016 and by 1.5 million b/d in 2017, growth that is 0.3 million b/d and 0.2 million b/d higher, respectively, than forecast in the April STEO. Many of the same drivers that prompted revisions to 2015 demand growth rates are expected to continue affecting demand in the forecast period. China's consumption is forecast to grow by 0.4 million b/d in both 2016 and 2017. EIA expects that China's demand for HGL will continue to grow at a fairly steady pace as additional PDH plants come online, including Oriental Energy's plant in Zhejiang and Haiwei's plant in Hebei. Gasoline and jet fuel consumption is also expected to grow in 2016. Similarly, EIA expects continued strength in India's consumption growth through the forecast period, particularly transportation fuel consumption, which is expected to drive year-on-year increases of 0.3 million b/d in both 2016 and 2017.

Overall consumption of petroleum and other liquid fuels in countries outside of the Organization for Economic Cooperation and Development (OECD) increased by an estimated 0.9 million b/d in 2015. Non-OECD consumption growth is expected to be 1.2 million b/d in 2016 and 1.4 million b/d in 2017.

OECD petroleum and other liquid fuels consumption rose by 0.5 million b/d in 2015. OECD consumption is expected to increase by 0.2 million b/d in 2016 and by 0.1 million b/d in 2017. In the OECD, growth in U.S. consumption more than offsets decreases in consumption in OECD Europe and Japan in 2016 and 2017.

EIA estimates that petroleum and other liquid fuels production in countries outside of the Organization of the Petroleum Exporting Countries (OPEC) grew by 1.6 million b/d in 2015, with most of the growth occurring in North America. EIA expects non-OPEC production to decline by 0.7 million b/d in 2016 and by 0.2 million b/d in 2017, with most of the production declines occurring in the United States.

Changes in non-OPEC production are largely driven by changes in U.S. tight oil production, which is characterized by high production decline rates and relatively short investment horizons, making it among the most price-sensitive oil production globally. However, increases in HGL production from natural gas plants and in crude oil production from the Gulf of Mexico will partially offset lower tight oil production. Forecast total U.S. production of liquid fuels declines by 0.6 million b/d in 2016 and by 0.1 million b/d in 2017, as declining crude oil production is partially offset by expected growth in HGL production, liquid biofuels production, and refinery processing gain. Outside of the United States, forecast non-OPEC production declines by 0.2 million b/d in 2016 and by 0.1 million b/d in 2017.

Petroleum and other liquids production, with the exception of U.S. tight oil plays, is relatively robust through 2017 because of investments that were committed to projects when oil prices were higher. Although oil companies have reduced investments, most of the cuts have been to capital budgets that largely affect production levels beyond 2017.

[MajorClay]

Good Read, thanks.

[Smokin Joe]

Thanks, thackney!

[Frank Cannon]

Personally the short-term energy outlook is good. I filled my tank today. I have a lot of driving to do tomorrow so the energy outlook may hit a crisis situation.

BTW, does anyone think the bottom was found on Brent and it is moving up or is this the eye of the storm?

[thackney]

BTW, does anyone think the bottom was found on Brent and it is moving up or is this the eye of the storm?

I've always felt if I (or anyone else) could predict the price of oil, I wouldn't be working to make a living.

[kidd]

Changes in non-OPEC production are largely driven by changes in U.S. tight oil production, which is characterized by high production decline rates and relatively short investment horizons, making it among the most price-sensitive oil production globally.

"tight oil" is that obtained by fracking, right?

I thought non-OPEC production was driven by Russian, British and Norwegian concerns. I didn't know that US fracking had become so important.

[IsailedawayfromFR]

"tight oil" is that obtained by fracking, right?

I thought non-OPEC production was driven by Russian, British and Norwegian concerns. I didn't know that US fracking had become so important.

Yes it is, although it is not all oil, but a lot of NGLs in the mix as the heavy ends of the gaseous phase makes up a lot of the production.

The article stands some clarification as well, as yes, the decline rates can be pretty steep, but only for newer wells.  There is very little decline for wells that were placed on production years ago, which constitute the bulk of current 'tight oil' production.

That is one reason the production has remained stubbornly high for the unconventionals.

[thackney]

"tight oil" is that obtained by fracking, right?

I thought non-OPEC production was driven by Russian, British and Norwegian concerns. I didn't know that US fracking had become so important.

Much of oil production on land uses hydraulic fracturing.  Tight oil refers to formations like shale or shale associated plays.  They are productive (economical) due to both hydraulic fracturing and steerable horizontal drilling.

The US and followed by Canada and Brazil has driven most of the Non-Opec oil production growth over the past few years.  And we have been the hardest with the low oil price and associated drops in production from our recent peak.