Global crude oil prices are on track to average $108/bbl in the second quarter and $102 in the second half of 2022 as Russia’s invasion of Ukraine roils energy markets, according to updated projections from the Energy Information Administration (EIA).

Brent crude oil prices averaged $117 in March, a $20 increase from February, EIA said in its latest Short-Term Energy Outlook (STEO), published Tuesday.

“Sanctions on Russia and other actions contributed to falling oil production in Russia and created significant market uncertainties about the potential for further oil supply disruptions,” researchers said. “These events occurred against a backdrop of low oil inventories and persistent upward oil price pressures.”

The outlook for crude prices remains “highly uncertain” in the current geopolitical environment, researchers cautioned.

“Actual price outcomes will depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market,” the EIA researchers said. 

How other oil producers respond to higher commodity prices and the impact of “macroeconomic developments” on global demand will also be important in influencing the trajectory of prices in the months ahead, the agency said.

Between the third quarter of 2020 and the end of 2021, global oil inventory draws averaged 1.7 million b/d, according to EIA. 

Even after cutting its projections for Russian oil production, EIA predicted an inventory build rate of 0.5 million b/d on average between 2Q2022 and the end of 2023.

“However, if production disruptions — in Russia or elsewhere — are more than we forecast, the resulting crude oil prices would be higher than our current forecast,” researchers said.

Global consumption of petroleum and liquid fuels totaled 98.3 million b/d in March, up 2.4 million b/d year/year. EIA said it expects consumption to average 99.8 million b/d for full-year 2022, a 2.4 million b/d year/year increase.

U.S. crude oil production is on track to average 12.0 million b/d this year, up 0.8 million b/d from 2021 levels, according to EIA. Output is expected to then rise to close to 13.0 million b/d in 2023.

Natural Gas Production Rising

U.S. dry natural gas production should average 96.9 Bcf/d in April and 97.4 Bcf/d for full-year 2022, which would reflect a 3.8 Bcf/d increase over 2021 levels, according to the latest STEO.

As the market has keyed in on supply adequacy fears and sent prices soaring well above $6.500/MMBtu this month, domestic production trends have taken on increased significance in setting the tone for prices. 

EIA estimated domestic output of 96.2 Bcf/d in March, up 1.2 Bcf/d from February levels.

“Similar to January and February, production in March was lower than in December because of brief periods of freezing temperatures in certain production regions and, in part, because of maintenance, according to public sources,” researchers said.

Henry Hub spot prices averaged $4.90 in March, up from $4.69 in February, EIA said. Drawing support from increased liquefied natural gas (LNG) exports over March levels, April Henry Hub spot prices are forecast to average $5.95; prices should average $5.68 for the second quarter and $5.23 for full-year 2022, the agency forecast.

Perhaps unsurprisingly in the context of recent price trends, the latest STEO Henry Hub forecast reflects a marked increase from the 2Q2022 average of $3.83 the agency modeled a month earlier.

Growth For LNG Exports

U.S. LNG exports increased 0.7 Bcf/d sequentially to 11.9 Bcf/d on average in March, EIA said. 

“LNG prices in Europe remain high amid supply uncertainties due to Russia’s further invasion of Ukraine and the need to replenish Europe’s natural gas inventories, which has kept Europe’s demand for LNG elevated,” researchers said. “Inventories in Europe were 26% full as of March 31, compared with the five-year average of 34%.”

U.S. LNG exports are expected to remain at “high levels” through the year, with an anticipated 2022 average of 12.2 Bcf/d, a 25% year/year increase, according to the latest STEO.

Domestic natural gas consumption, meanwhile, is set to average 84.1 Bcf/d for 2022, a 1% increase over 2021 levels. Researchers attributed the higher forecast demand in 2022 to increased residential/commercial demand and higher industrial consumption “in response to expanding economic activity.”

The latest STEO projections assume 3.4% growth in U.S. gross domestic product in 2022 and 3.1% growth in 2023, versus growth of 5.7% in 2021.

“A wide range of potential macroeconomic outcomes could significantly affect energy markets during the forecast period,” researchers said. “Energy supply uncertainty results from the conflict in Ukraine, the production decisions of OPEC-plus, and the rate at which U.S. oil and natural gas producers increase drilling.”