As the recent discovery of the Covid-19 Omicron variant has renewed concerns about a potential decline in consumption, Brent crude oil spot prices are set to average $71/bbl in December and $73 through the first quarter of 2022, according to updated projections from the Energy Information Administration (EIA).

In an updated forecast published Tuesday as part of the December edition of the EIA’s Short-Term Energy Outlook, the agency predicted an average Brent spot price of $70 for 2022 overall.

Next year production growth is predicted to outpace global consumption, “especially in light of renewed concerns about Covid-19 variants,” researchers said.

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The updated near-term Brent forecast represents a notable softening of the price outlook from the previous month’s forecast, when EIA predicted an $82 average for Brent for 4Q2021.

Brent spot prices averaged $81 for November, a sequential decrease of $3 but up sharply from prior year levels, according to EIA. Still, news of Omicron drove significant price declines in late November as it “raised the possibility that petroleum demand could decline in the near term.”

EIA in the latest STEO cautioned that the emergence of Omicron “raises uncertainty about the level of energy consumption throughout the world” versus the prior month’s expectations.

“In addition to uncertainty about macroeconomic conditions, winter weather along with the evolving effects of consumer behavior on energy demand because of the pandemic present a wide range of potential outcomes for energy consumption,” researchers said.

The world consumed an estimated 99.7 million b/d of petroleum and liquid fuels last month, up 4.9 million b/d year/year but still 1.1 million b/d shy of 2019 levels for the month, according to EIA. 

In part due to recent travel restrictions aimed at preventing Omicron’s spread, the agency revised lower its consumption forecast for 4Q2021 and 1Q2022. EIA expects overall consumption of 96.9 million b/d for full-year 2021, with that figure expected to rise to 100.5 million b/d for full-year 2022.

As for supply, EIA estimated total U.S. crude oil production of 11.7 million b/d for November. Domestic output is projected to rise to 11.8 million b/d in 2022, including average output of 12.1 million b/d for 4Q2022.

Winter Price Forecast Slashed

Meanwhile, natural gas bulls have taken it on the chin so far this winter, but Henry Hub spot prices remain on track to average $4.58/MMBtu from December through February, according to EIA.

The winter price prediction reflects a roughly $1 discount versus the prior month’s forecast, when the agency called for an average price of $5.51 for November through February.

EIA said its forecast Henry Hub spot price “generally declines through 2022” to an average of $3.98 for the full year on rising domestic production and slowing growth in liquefied natural gas (LNG) exports.

Prices at the national benchmark averaged $5.05 in November, down sequentially from the $5.51 October average. Mild weather lowered heating demand and allowed stockpiles to narrow the deficit versus the five-year average during the month, even as strong global demand supported prices, the agency noted.

EIA continues to expect near-average withdrawals from storage for the 2021/22 winter, and this along with strong LNG takeaway and “relatively flat production” levels through March should keep natural gas prices “near recent levels before downward price pressures emerge.”

Will Natural Gas Prices Remain Volatile?

Still, prices figure to “remain volatile over the coming months” amid “uncertainty around seasonal demand” as winter temperatures set the pace for natural gas consumption.

U.S. natural gas inventories exited November at more than 3.5 Tcf, or 3% shy of the prior five-year average, according to EIA. 

“We expect natural gas inventories to fall by 2.0 Tcf during the November-March withdrawal season, ending March below 1.7 Tcf, which would be 2% less than the 2017-2021 average for that time of year,” researchers said.

LNG exports averaged 10.7 Bcf/d for November, a 0.8 Bcf/d sequential increase amid wide price differentials between domestic and global benchmarks. The agency is forecasting 11.1 Bcf/d of exports on average for December through March.

“We expect high levels of LNG exports to continue into 2022, averaging 11.5 Bcf/d for the year, a 17% increase from 2021,” researchers said. “The forecast reflects our assumption that global natural gas demand remains high and U.S. LNG export capacity increases.”

On the supply side, domestic dry natural gas production averaged 96.1 Bcf/d in November, up 1.0 Bcf/d sequentially and up from 91.9 Bcf/d for the first half of 2021.