U.S. to again become net importer of crude oil amid COVID-19 pandemic, EIA says

The United States is expected to again become a net importer of crude oil and petroleum products in the third quarter of this year and remain a net importer of these products through the majority of 2021 in the wake of the COVID-19 (coronavirus) pandemic, according to new projections.

The U.S. Energy Information Administration (EIA) released Tuesday (April 7) the Short-Term Energy Outlook for April and noted the outlook is subject to an increased level of uncertainty because the impacts of COVID-19 on energy markets continue to evolve. Similar uncertainties also exist across other energy sources, including natural gas and electricity.

The COVID-19 pandemic has caused significant changes in energy fuel supply and demand patterns, while crude oil prices have fallen considerably since the start of 2020 as a result of economic contraction attributed to the respiratory illness and a rise in crude oil supply following the suspension of production cuts among the Organization of the Petroleum Exporting Counties (OPEC) and partner countries, the outlook shows. Despite recent news regarding emergency meetings of OPEC and the partner countries, the EIA’s forecast doesn’t assume the cuts would resume as a new agreement has yet to be reached. Future outlooks would include the change if an agreement is reached.

“Significant disruptions to the global economy and reduced travel related to COVID-19 led EIA to lower expected demand growth for 2020,” EIA Administrator Linda Capuano said. “EIA estimates that consumption of global petroleum and liquid fuels in the first quarter fell by 5.6 million barrels per day compared with the same period last year. We forecast liquid fuels demand will decrease by 5.2 million barrels per day in 2020 before increasing by 6.4 million barrels per day in 2021.”

Global liquids fuels inventories are expected to rise by an average of 3.9 million barrels per day in 2020 because of widespread travel restrictions and a decline in economic activity, Capuano said. Global petroleum inventories are projected to increase an average of 11.4 million barrels per day in the second quarter of 2020, and this would be the largest rate of inventory increase on record, she said.

“EIA expects large stock builds will put downward price pressure on crude oil prices for several months,” Capuano said. “Brent crude oil prices averaged $32 per barrel in March, the lowest monthly average since January 2016. We expect prices will fall further during the second quarter before increasing to $30 per barrel in the second half of 2020.”

Brent crude oil prices are expected to be an average of $33 per barrel in 2020, and this is $10 lower than projected in March and down from an average of $64 per barrel in 2019. Brent prices are expected to be an average of $46 per barrel in 2021, and this is also $10 lower than projected in March.

The United States is expected to return to being a net importer of crude oil and petroleum products in the third quarter of 2020 and remain a net importer in most months through 2021, Capuano said. This will be a result of a rise in net crude oil imports because, as U.S. crude oil production falls, there will be fewer barrels available for export. Regarding petroleum products, net exports will be the lowest in the third quarter of 2020, when U.S. refinery runs are expected to fall significantly.

“We expect the biggest effect of COVID-19 related restrictions on U.S. liquid fuels demand will occur in the second quarter of 2020 before gradually dissipating over the next year and a half as normal travel and business activity slowly recover,” Capuano said. “U.S. motor gasoline consumption will reach some of the lowest levels in 20 years in the second quarter of 2020. Diesel fuel consumption should only see minor decreases as long-haul trucking and last-mile delivery demand rise in the near term.”

Personal travel reductions in normal commuting and vacation travel are expected to contribute to a decline in gasoline prices. For the April to September 2020 summer driving season, U.S. regular retail prices will be an average of $1.58 per gallon, down from an average of $2.72 last summer. U.S. regular gasoline prices we be an average of $1.86 per gallon in 2020. Diesel fuel prices are expected to have minor decreases as demand rises for long-haul trucking and last-mile delivery.

As a result of lower crude oil prices, U.S. crude oil production is expected to be lower than projected in March, down 500,000 barrels per day in 2020 compared to 2019 and is expected to continue to fall in 2021.

Regarding natural gas, the Henry Hub natural gas spot price is expected to rise at the end of the second quarter of 2020 as U.S. natural gas production falls and natural gas use for power generation increases the demand for natural gas. Henry Hub natural gas spot prices are expected to average $2.11 per million British thermal units in 2020 and rise to $2.98 per million British thermal units in 2021 as a result of lower natural gas production compared to 2020.

Residential consumption of natural gas is expected to fall 5.8% to 12.9 billion cubic feet per day in 2020, from 2019, because of warmer-than-normal weather in the first quarter. The warmer weather and a weaker economic outlook are expected to contribute to a 7.1% decline in the commercial consumption of natural gas. Industrial consumption of natural gas is expected to be flat in 2020 as a result of less manufacturing activity.

U.S. dry natural gas production is projected to fall to an average of 91.7 billion cubic feet per day in 2020, from a record of 92.2 billion cubic feet per day in 2019. The production is projected to fall to an average of 87.5 billion cubic feet per day in 2021.

Concerning electricity usage, the economic slowdown and stay-at-home orders are expected to affect U.S. electricity consumption over the next few months. Commercial electricity sales are projected to fall by 4.7% in 2020 as a result of business closures. Industrial electricity sales are expected to fall 4.2% as factories cut production. Residential electricity sales are expected to fall 0.8% as reduced power usage as a result of a milder winter and summer are offset by increased household electricity usage as much of the population stays at home.

The EIA previously projected the United States would be a net exporter of energy through 2050 as technology enabled growth in domestic oil and natural gas production. The United States became a net exporter of energy on a monthly basis in September 2019 after being a net importer for decades.