Brent crude oil prices to remain flat through end of 2020

Global crude oil consumption rose in October as international benchmark Brent crude oil spot prices declined $1 to $40 per barrel, from September, according to the U.S. Energy Information Administration (EIA).

The EIA released Tuesday (Nov. 10) the Short-Term Energy Outlook showing that the GDP started to rise in the third quarter, and it is expected to increase by 3.7%, from 2020 to 2021. The U.S. macroeconomic assumptions in the outlook are based on IHS Markit forecasts.

“Brent crude oil prices in October were down a dollar from September as production in Libya came back online and worldwide COVID-19 cases rose,” said EIA Administrator Linda Capuano. “EIA expects Brent prices will remain near October’s average of $40 per barrel for the rest of the year as high global oil inventories and surplus production capacity limit upward price pressure.”

In 2021, Brent crude oil prices are expected to rise to $47 per barrel, Capuano said.

“Although global oil consumption increased in October from the second and third quarter of 2020, it was down 5.9 million barrels per day from October 2019,” she noted. “EIA forecasts that global consumption of petroleum and liquid fuels will be 8.6 million barrels per day less in 2020 than in 2019.”

U.S. crude oil production fell by 400,000 barrels per day to 10.6 million barrels per day in August, from July, according to the most recent data available. The decline can be attributed to hurricanes disrupting production from the U.S. Gulf of Mexico. The production is expected to rise to 11.2 million barrels per day in November. It is expected to fall to 11 million barrels per day by the second quarter of 2021 because new drilling activity will not generate enough production to offset declines from existing wells. Production is expected to rise to 11.3 million barrels per day in the fourth quarter of 2021.

NATURAL GAS
In October, Henry Hub spot prices rose by 47 cents to $2.39 per million British thermal units, from $1.92 per million British thermal units in September. The spot price is expected to rise to an average of $3.42 per million British thermal units in January because of rising domestic demand for natural gas for spacing heating, rising U.S. liquefied natural gas (LNG) exports and reduced production. Monthly average spot prices are expected to remain higher than $3 per million British thermal units throughout 2021. The spot prices are expected to rise to an average of $3.14 per million British thermal units in 2021, from $2.14 per million British thermal units in 2020.

“EIA estimates that U.S. working natural gas storage reached the second-highest level on record at the end of October, up 5% from the previous five-year (2015-19) average,” Capuano said. “Less production this winter compared with last year will contribute to inventory withdrawals that are larger than the five-year average this heating season. With these larger withdrawals, we forecast inventory levels will end the winter in March 16% lower than the five-year average.”

Natural gas consumption in the United States is expected to fall by 1.7% to 83.7 billion cubic feet per day in 2020, from 2019, as a result of less heating demand in early 2020. The consumption is expected to decline by 5.2% to 79.4 billion cubic feet per day in 2021, from 2020. The decline in 2021 can be attributed to rising natural gas prices that will reduce demand for natural gas in the electric power sector.

U.S. dry natural gas production is expected to fall to 91 billion cubic feet per day in 2020, from 93.1 billion cubic feet per day in 2019. Production will start to rise in the second quarter of 2021 in response to higher natural gas and crude oil prices. The increase in crude oil prices is expected to raise associated gas production from oil-directed wells in late-2021, especially in the Permian region.

“In October, U.S. LNG exports saw the largest month-on-month increase since the United States began exporting LNG in 2016,” Capuano said. “EIA expects LNG exports to return to late 2019 levels in November. We forecast exports will increase 31% from 2020 to 2021.”

ELECTRICITY
U.S. consumption of electricity is projected to decline by 3.6% in 2020. Milder winter temperatures earlier this year contributed to less residential consumption for space heating. This was offset by increased summer cooling demand and increased electricity use by more people working and attending classes from home. The consumption is expected to rise by 0.9% in 2021 as a result of increased demand for space heating that will be partially offset by less cooling demand in the third quarter.

The U.S. electric power sector is expected to increase its share of electricity generation from natural gas-fired power plants to 39% in 2020, from 37% in 2019. The share is projected to fall to 33% as a result of higher natural gas prices. Coal’s share is expected to fall to 20% in 2020, from 24% in 2019. It is projected to rise to 25% in 2021. Electricity generation from renewable sources is expected to rise to 20% in 2020, from 18% in 2019. It is expected to increase to 22% in 2021. Nuclear generation is expected to be about 20% in 2020 and 2021.

In 2020, coal production is expected to fall by 26%, but in 2021, it will increase by 20%. This is a result of increased natural gas prices shifting demand toward coal in the electric power sector.

“In 2020, EIA forecasts that U.S. energy-related CO2 emissions will be 10% lower than last year as a result of reduced consumption of all fossil fuels,” Capuano said. “EIA expects emissions to increase 6% in 2021 as the economy recovers and energy use increases.”