Brent crude oil prices once again are expected to reach $90/bbl-plus by the second quarter of next year amid falling global inventories, and prices for the benchmark would likely average $92 for full year 2023, according to updated modeling from the Energy Information Administration (EIA).

In its latest Short-Term Energy Outlook (STEO), published Tuesday, the agency noted recent downward pressure on crude prices, driven by market concerns over global economy activity levels and the demand impacts of Covid restrictions in China.

“Despite the recent drop in crude oil prices, we still expect that falling global inventories of oil in early 2023 will push Brent prices back above $90 by the beginning of the second quarter of 2023,” researchers said. “Although we expect some downward oil price pressure could emerge in the second half of 2023 based on our forecast of rising oil inventories, that pressure will likely be balanced by the ongoing possibility of supply disruptions or production growth that is slower than our forecast.”

EIA said it sees “limited slack” for global oil markets in its forecast. Inventories have increased during the second half of 2022. However, among OECD (aka Organisation for Economic Co-operation and Development) countries, commercial petroleum inventories “spent most of 2022 at their lowest levels in five years on a days-of-supply basis, and we expect that they will remain near the bottom of their recent five-year range (2017-2021) throughout 2023.”

Russia’s invasion of Ukraine continues to contribute to “significant uncertainty” around what impact the conflict may have on global oil prices, according to the STEO.

“We expect that most of Russia’s crude oil exports that will no longer go to Europe will find a destination elsewhere,” researchers said. “However, we expect Russia’s oil production will continue to decline in 2023” as “a number of countries” cut back on imports from Russia.

NatGas Production Forecast Raised

Meanwhile, driven by associated output from the Permian Basin, EIA is raising its forecast for domestic natural gas production in 2023.

The latest STEO calls for U.S. natural gas production to average 100.4 Bcf/d next year, up from the month-earlier forecast for output of 99.7 Bcf/d.

“Although we continue to expect natural gas production in the Permian Basin to be limited early in 2023 by the lack of pipeline capacity to bring associated natural gas production to market, we expect these constraints will be resolved earlier than we had previously assumed,” researchers said.

Domestic output is expected to average around 100 Bcf/d from December through March, down around 0.5 Bcf/d from November levels on potential weather-related disruptions, including freeze-offs, according to EIA. 

U.S. dry natural gas production in 2022 has surpassed pre-pandemic monthly records going back to 2019, with October and November output topping the 100 Bcf/d mark, researchers said. 

They pointed to the Permian and the Haynesville Shale as key drivers of the recent growth, catalyzed by increased natural gas pipeline capacity in those regions.

Meanwhile, Henry Hub spot prices are to average $6/MMBtu in 1Q2023 under the latest STEO projections, up from a November average of around $5.50.

“We expect natural gas prices will begin declining after January as U.S. storage levels move closer to the previous five-year average, largely as a result of rising U.S. natural gas production,” researchers said. “However, the possibility of price volatility remains high.”

Recent Nymex futures trading has January prices lagging the EIA’s 1Q2023 outlook as mild weather and strong production to close out the year have contributed to downward pressure on prices. The January contract settled below the $5.50 mark on Tuesday.

On the demand front, EIA said it expects U.S. LNG exports to reach a new record at close to 12.5 Bcf/d in March 2023, when it expects the Freeport export terminal to have resumed operations. 

For full-year 2023, U.S. liquefied natural gas exports are expected to average 12.3 Bcf/d, with facilities operating near capacity to meet demand from Europe and Asia, according to the STEO.