Citing a recent decision by the Organization of the Petroleum Exporting Countries and its allies (OPEC-plus) to limit production, the U.S. Energy Information Administration (EIA) on Tuesday raised its forecast for 1Q2021 Brent crude oil prices to $47/bbl, up $5 from projections issued a month earlier.

The new Brent price forecast, published Tuesday in the December edition of the agency’s Short-Term Energy Outlook, reflects “steeper expected global oil inventory draws” resulting from the Dec. 3 OPEC-plus decision, which would see the cartel limit previously planned production increases next month, EIA said.

For full-year 2021, EIA expects Brent to average $49, up from an expected average of $43 for 4Q2020. The agency predicted that “while inventories will remain high, they will decline with rising global oil demand and restrained OPEC-plus oil production.” Prices are set to climb from $47 in 1Q2021 to $50 by 4Q2021, according to EIA.

Brent spot prices averaged $43 in November, a $3 month/month increase, EIA said, attributing the rising prices to market expectations that OPEC-plus would seek to delay or limit production increases and “news about the viability of multiple Covid-19 vaccines.”

OPEC-plus crude production is set to average 27.5 million b/d in 2021, versus an estimated 25.6 million b/d in 2020, EIA said. 

U.S. crude oil production averaged an estimated 11.2 million b/d in November, up from 10.9 million b/d in September. The agency attributed the increased domestic output primarily to higher Gulf of Mexico production following hurricane-related disruptions earlier this year.

Domestic crude production should decline to less than 11.0 million b/d in March 2021 as declining production rates from existing Lower 48 wells “outpace production from newly drilled wells in the coming months,” EIA said.

On an annual average basis, U.S. crude oil production is set to fall from 12.2 million b/d in 2019 to 11.3 million b/d in 2020 and 11.1 million b/d in 2021, researchers said.

NatGas Price Forecast Slashed

With natural gas stockpiles higher than previously expected on warmer-than-normal winter temperatures to date, EIA said it’s slashing its forecast for average January natural gas spot prices to $3.10/MMBtu, down from $3.42 predicted a month ago.

EIA’s lowered forecast for benchmark Henry Hub follows a stretch of milder weather that saw November spot prices at the benchmark average $2.61, up slightly from the October average of $2.39.

“Price increases last month were moderated by significantly warmer-than-normal temperatures, which reduced residential space heating demand for natural gas despite many remaining at home in response to the pandemic,” EIA said.

EIA researchers still expect prices to increase in the months ahead on a combination of higher heating demand, increasing exports of liquefied natural gas (LNG) and domestic production declines. However, “the lower January price forecast reflects higher forecast storage levels this winter compared with last month’s forecast.”

The agency expects monthly average spot prices to average $3.01 for full-year 2021, up from a forecast average of $2.07 for 2020.

Helping quantify the extent to which mild temperatures have cut into space heating demand so far this winter, withdrawals from U.S. natural gas storage totaled only 20 Bcf for November, sharply below the 103 Bcf five-year average withdrawal for the month. 

This came on the heels of end-of-October inventories that clocked in at close to 4.0 Tcf, 5% higher than the five-year average and the second-highest level on record for the time of year, according to the agency.

While warmer-than-normal temperatures have yielded lower-than-expected withdrawals so far this season, “declines in U.S. natural gas production this winter compared with last winter will more than offset the declines in natural gas consumption, which will contribute to inventory withdrawals outpacing the five-year average” between now and the end of March.

EIA forecast a storage carryout of 1.6 Tcf for end-of-March 2021, 15% lower than the prior five-year average.

Looking more closely at the demand picture, EIA said the United States exported 9.4 Bcf/d of LNG in November, a new monthly record.

“International spot and forward LNG prices continued to increase in late November, supported by reduced global LNG supply because of outages at LNG export plants in several countries and reported congestion at the Panama Canal, which affected westbound U.S. LNG exports to Asia,” researchers said.

LNG demand is expected to continue rising, driven by expectations for colder-than-normal winter weather in Northern Asia and Europe, along with coal plant closures in South Korea that figure to increase demand for natural gas-fired electric generation there, EIA said.

The agency projected more than 9.5 Bcf/d of U.S. LNG exports for December through February, with exports to average 8.5 Bcf/d for 2021, 30% above 2020 levels.

Within U.S. borders, natural gas consumption is expected to average 83.4 Bcf/d for 2020, a 2.0% decline versus 2019 levels, which EIA attributed to warmer overall temperatures this year compared to last. Total U.S. consumption is expected to fall further to 79.4 Bcf/d in 2021, a 4.8% decline from 2020 levels.

“The forecast decline in 2021 results from rising natural gas prices that lower forecast natural gas demand in the electric power sector,” researchers said.

In terms of supply, U.S. dry natural gas production is forecast to decline to an average 87.1 Bcf/d by April 2021 before increasing slightly. Production is forecast to average 87.9 Bcf/d in 2021, versus 90.9 Bcf/d in 2020 and 93.1 Bcf/d in 2019. Production peaked at 97.0 Bcf/d in December 2019, according to EIA.