The COVID-19 pandemic has not only led to reduced economic activity and changed energy supply and demand patterns for 2020, but it’s also contributed to heightened levels of uncertainty in the Short-Term Energy Outlook over the past several months, including the August report.
The U.S. Energy Information Administration (EIA) released Tuesday (Aug. 11) the Short-Term Energy Outlook for August that shows uncertainties affect the outlook for all energy sources, including liquid fuels, natural gas, electricity, coal and renewables.
The outlook is based on U.S. macroeconomic forecasts by IHS Markit and assumed U.S. GDP declined by 5.2% in the first half of 2020, from the same period in 2019. GDP is projected to rise in the third and fourth quarters of 2020 and through 2021.
Since the previous Short-Term Energy Outlook in July, the EIA lowered the U.S. crude oil production estimates for 2020 by 370,000 barrels per day. As a result, crude oil production is expected to be an average of 11.3 million barrels per day in 2020 and 11.1 million barrels per day in 2021, down from 12.2 million barrels per day in 2019.
Recent data shows the average monthly U.S. oil production for May was 1.2 million barrels lower than the projections in July, and this indicated more production cuts that previously expected. Also, the August outlook assumed the Dakota Access Pipeline will remain in operation. On July 6, a federal judge ordered the temporary closure of the Dakota Access Pipeline starting in early August. A U.S. appeals court has overturned the lower court decision and has allowed the pipeline to remain open amid the ongoing litigation.
International benchmark Brent Crude oil spot prices are expected to be an average of $43 per barrel in the second half of 2020 and rise to an average of $50 per barrel in 2021, according to the EIA’s energy outlook. In July, the prices were an average of $43 per barrel, up $3 from the average in June and up $25 from the low in April.
U.S. regular gasoline retail prices are projected to be an average of $2.12 per gallon in 2020 and $2.23 per gallon in 2021. The price per gallon was an average of $2.18 in July, up 10 cents from June but 56 cents lower than at the same time in 2019. The gasoline prices will gradually rise through the rest of summer and reach an average of $2.04 per gallon in September before falling to an average of $1.99 per gallon in the fourth quarter.
High inventory levels and surplus crude oil production capacity will limit price increases in the coming months, but as inventories fall in 2021, this will put pressure on prices to rise. Global liquids fuels inventories rose at a rate of 6.4 million barrels per day in the first half of 2020 and are expected to fall at a rate of 4.2 million barrels per day in the second half of the year and decline by 800,000 barrels per day in 2021.
Consumption of petroleum and liquid fuels globally is projected to fall by 8.1 million barrels per day to an average of 93.1 million barrels per day in 2020, from 2019, before increasing by 7 million barrels per day in 2021. Demand for global petroleum and liquid fuels fell by 9.1 million barrels per day to an average of 93.4 million barrels per day in July, from the same month in 2019. The demand rose from an average of 85 million barrels per day in the second quarter; however, it was down by 15.8 million barrels per day in the same period in 2019.
The global supply of oil is expected to fall to 90.4 million barrels per day in the third quarter before rising to an annual average of 99.4 million barrels per day in 2021. Global liquid fuels production declined by 8.6 million barrels per day to 91.8 million barrels per day in the second quarter, from the same period in 2019. The decline reflects the voluntary production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) and reductions in drilling activity and production in the United States because of low oil prices.
U.S. liquid fuels consumption is expected to fall 1.8 million barrels per day to an average of 18.9 million barrels per day in the third quarter, from the same period in 2019, before rising to an average of 20 million barrels per day in 2021. The 2021 forecast level is 1.6 million barrels per day more than the projection for 2020, but it’s 400,000 barrels per day less than the 2019 average. U.S. liquid fuels consumption fell 20% or by 4.1 million barrels per day to 16.2 million barrels per day in the second quarter, from the same period in 2019.
NATURAL GAS PRICES
Henry Hub natural gas spot prices are expected to be an average of $2.03 per million British thermal units in 2020 and $3.14 per million British thermal units in 2021.
“EIA expects sharp increases in U.S. natural gas prices this fall and winter, rising from an average of $2.11 per million British thermal units in September to $3.12 per million British thermal units in January,” said EIA Administrator Linda Capuano.
Working natural gas storage is expected to increase by 2 trillion cubic feet between April and October and reach nearly 4 trillion cubic feet by Oct. 31. The storage was 3.3 trillion cubic feet at the end of July and was 15% higher than the five-year (2015-19) average.
Natural gas consumption in the United States is projected to fall 3% to an average of 82.4 billion cubic feet in 2020, from 2019. The decline can be attributed to lower heating demand in early 2020.
Dry natural gas production in the United States is expected to be an average of 88.7 billion cubic feet per day in 2020, down from a record of 92.2 billion cubic feet per day in 2019. Production will fall to an average of 84 billion cubic feet per day in 2021 before it starts to rise in the second quarter of 2021 in response to higher natural gas and crude oil prices.
Link here for the complete outlook for August.