Brent crude prices gained $5/bbl from May to June and are on track to average $72 during the second half of 2021 (2H2021), the Energy Information Administration (EIA) said in an updated forecast published Wednesday.

Brent prices rose to $73 in June, up $5 month/month and up $33 from year-ago prices, EIA said. Rising production should “reduce the persistent global oil inventory draws” observed over the past year and help to stabilize prices around current levels, according to the July edition of the agency’s Short-Term Energy Outlook (STEO).

In last month’s STEO, EIA had called for Brent to average $68 during the third quarter. 

Continuing output increases in 2022 from the Organization of the Petroleum Exporting Countries and its allies, along with “accelerating growth” from Lower 48 tight oil producers, among other sources of supply growth, will see prices slide next year, researchers said. With supply growth expected to outpace global consumption, EIA said it forecasts an average Brent price of $67 in 2022.

Global petroleum and liquid fuels consumption is expected to grow 5.3 million b/d this year after averaging 92.3 million b/d in 2020, EIA said. Consumption is set to rise another 3.7 million b/d to reach 101.4 million b/d in 2022, surpassing 2019 levels, according to the latest STEO.

After increasing by an estimated 6.3 million b/d in the first half of 2020, global liquid fuels inventories declined by 2.1 million b/d on average through 2H2020 and the first six months of this year, EIA said. 

“We forecast global inventories will continue to fall in the near term but at a slower rate, with global inventories falling by 0.2 million b/d in 2H2021,” researchers said. “We then expect inventories to rise by almost 0.5 million b/d in 2022.”

Rising Henry Hub Forecast

After June brought higher cooling demand and a widening storage deficit, EIA said it is raising its projected average Henry Hub natural gas spot price to $3.21/MMBtu for 2021.

The latest natural gas price forecast represents a 14-cent increase over the previous month’s projections. The higher expected Henry Hub average comes as June brought a sequential 4.3 Bcf/d increase in domestic natural gas consumption, driven by power burns, according to the STEO report.

“In June, warm weather meant that cooling degree days were 9.6% higher than the 10-year average, prompting strong electric power sector demand in response to elevated household air conditioning use,” EIA researchers said. 

The strong demand within U.S. borders during the month coincided with continued “high levels” of liquefied natural gas exports, which averaged an estimated 9.0 Bcf/d in June, a record for the month, according to EIA.

U.S. natural gas stockpiles ended June 25 at a 143 Bcf deficit to the five-year average, compared with a 61 Bcf deficit for the week ending May 28, the agency said.

“We forecast that flat U.S. natural gas production this summer combined with record U.S. natural gas exports will contribute to slightly lower-than-average inventory builds during the remainder of the summer build season,” EIA said.

EIA said it expects average Henry Hub spot prices to fall to $3.00 in 2022.

June saw strong demand for natural gas in electric generation. However, EIA still expects less use of the fuel in the power sector because higher prices this year should result in an overall decline in domestic consumption of 1.1% from 2020 levels. Domestic consumption is expected to then climb 0.7% year/year in 2022.

Natural gas is on track to account for 36% of U.S. electric generation on average this year and again in 2022, down from 39% in 2020, according to the latest STEO.

“Because we expect higher natural gas prices, we forecast coal’s generation share to rise from 20% in 2020 to 24% this year but to fall to 22% next year,” researchers said.

Wind and solar are expected to account for a rising share of generation, up from 11% in 2020 to 15% in 2022. Drought conditions in the West, meanwhile, will see hydropower account for 6% and 7% of U.S. generation in 2021 and 2022, respectively, versus 8% in 2020, according to EIA.

EIA expects total energy-related carbon dioxide emissions to increase 7.1% this year and another 1.5% in 2022. Those increases would follow an 11.1% 2020 emissions decline.

“Even with growth over the next two years, forecast emissions in 2022 remain 3.3% lower than in 2019,” researchers said.