COVID-19 vaccine news, OPEC decision led to crude oil price increase

News on the viability of COVID-19 vaccines partly contributed to a rise in crude oil prices in November, according to the U.S. Energy Information Administration (EIA).

The EIA released Tuesday (Dec. 8) the Short-Term Energy Outlook showing that international benchmark Brent crude oil prices rose by $3 per barrel to an average of $43 in November, from October, in part because of the news about the viability of multiple COVID vaccines and expectations that the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) would delay or limit production increases planned for January.

U.S. macroeconomic assumptions in the outlook show the GDP is expected to rise by 3.1% in 2021, from 2020. GDP started to rise in the third quarter after falling by 4.4% in the first half of 2020, according to forecasts by IHS Markit.

Brent prices are expected to be an average of $49 per barrel in 2021. The forecast for higher crude oil prices next year can be attributed to the expectation that while inventories will remain high, they will fall with global oil demand and restrained OPEC+ oil production. Brent prices are projected to be an average of $47 per barrel in the first quarter of 2021 and rise to an average of $50 per barrel by the fourth quarter of the year.

The Dec. 3 decision by OPEC+ to limit its previously planned production increases in January is expected to contribute to higher prices in the fourth quarter and first quarter of 2021. High global oil inventory levels and surplus crude oil production capacity are expected to limit increases in oil prices through much of 2021.

OPEC crude oil production is expected to be an average of 25.7 million barrels per day in the first quarter of 2021, EIA Administrator Linda Capuano said.

Global consumption of petroleum and liquid fuels is expected to be an average of 92.4 million barrels per day in 2020, down by 8.8 million barrels from 2019. The consumption is projected to rise by 5.8 million barrels in 2021.

U.S. crude oil production is expected to fall to less than 11 million barrels per day in March 2021 because of falling production in the lower 48 states, where declining production rates at existing wells will outpace production from new wells. Crude oil production in the lower 48 states will rise from 8.7 million barrels per day in February 2021 to 9.1 million barrels per day in December 2021 as drilling rises as a result of increasing oil prices. This increase will contribute to total U.S. crude oil production reaching 11.4 million barrels per day in December. The production is expected to fall from 12.2 million barrels per day in 2019 to 11.3 million barrels per day in 2020 and 11.1 million barrels per day in 2021.

NATURAL GAS
The Henry Hub natural gas spot prices are expected to reach a monthly average of $3.10 per million British thermal units in January 2021. Monthly average spot prices are expected to be an average of $3.01 per million British thermal units in 2021, up from $2.07 per million British thermal units in 2020.

U.S. working natural gas fell by 20 billion cubic feet in November, and this was lower than the expected withdrawal of 222 billion cubic feet in EIA’s previous outlook. The lower-than-expected withdrawal can be attributed to warmer-than-normal temperatures in November that resulted in reduced natural gas use for space heating. However, inventory withdrawals are projected to outpace the five-year average during the remainder of the winter season that ends in March. Inventories are projected to be 1.6 trillion cubic feet, or 15% lower than the 2016-20 average by the end of March.

U.S. consumption of natural gas is projected to fall 2% to 83.4 billion cubic feet in 2020, from 2019. The decline can be attributed to warmer temperatures in 2020 compared to 2019 that lowered residential space heating demand for natural gas even as more people stayed home in response to the pandemic. Total U.S. natural gas consumption is projected to fall 4.8% to 79.4 billion cubic feet per day in 2021, from 2020. The decline is expected to be attributed to rising natural gas prices that reduce natural gas demand in the electric power sector.

Dry natural gas production is expected to fall to 90.9 billion cubic feet per day in 2020, from 93.1 billion cubic feet per day in 2019. The production is expected to be an average of 87.9 billion cubic feet per day in 2021. The production is expected to start rising 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.

“The United States exported an estimated 9.4 billion cubic feet per day of (liquefied natural gas) LNG in November, the highest monthly U.S. LNG exports on record,” Capuano said. “We forecast that U.S. LNG exports will increase 30% from 2020 to 2021.”

ELECTRICITY
Electricity consumption is expected to fall by 3.9% in 2020. The consumption is projected to rise by 1.3% in 2021. This can be attributed to a forecast for colder temperatures in the first quarter compared to the same period last year and continued higher consumption as many people will remain at home more because of the pandemic.

“EIA expects U.S. residential electricity prices to average 13.1 cents per kilowatt-hour in 2020, up 0.8% from 2019,” Capuano said. “EIA expects continued growth for both wind and solar generation in 2021, with electric generation from wind and solar increasing 17.2% and 32.3% from 2020 to 2021, respectively.

“EIA estimates that 23 gigawatts of wind turbine generating capacity were added in the United States in 2020, an increase of 22% from 2019 and more new wind capacity than the previous record of 13.4 gigawatts added in 2012,” she added. Utility-scale solar capacity is expected to rise by 12.8 gigawatts in 2020 and by 14 gigawatts in 2021.