After averaging $84/bbl in October, Brent crude oil spot prices are on track to remain near current levels through the end of 2021, according to updated forecasting from the Energy Information Administration (EIA).

The agency said in its latest Short-Term Energy Outlook (STEO), published Tuesday, that it expects Brent crude spot prices to average $82 during the fourth quarter. The $84 October Brent average represented a $9 sequential increase over September prices.

EIA said it expects Brent prices to soften to $72 on average in 2022 as production growth — from the Organization of the Petroleum Exporting Countries and its allies, from U.S. tight oil and from other sources — outpaces slowing growth in global consumption.

Global consumption reached 98.9 million b/d in October, lagging pre-pandemic October 2019 demand by 1.9 million b/d, according to the latest STEO. 

“We revised up our forecast for consumption of petroleum and liquid fuels for the fourth quarter of 2021, partially as a result of fuel switching from natural gas to petroleum in the electric power sector in parts of Asia and Europe” resulting from soaring natural gas prices globally, researchers said.

Petroleum and liquid fuels consumption is set to average 97.5 million b/d for 2021 overall, up 5.1 million b/d year/year. Consumption is then forecast to climb another 3.3 million b/d in 2022, according to the agency.

EIA estimated 11.4 million b/d of domestic crude oil production for October, up from 10.7 million b/d in September. The agency said it forecasts 11.6 million b/d of output for December, with full-year 2022 production on pace to average 11.9 million b/d on growth in tight oil production in the United States.

“Growth will come largely as a result of onshore operators increasing rig counts, which we expect will offset production decline rates,” researchers said.

Elevated Henry Hub Gas Prices

Natural gas spot prices are set to average $5.53/MMBtu over the next few months as near-average winter inventory draws and higher liquefied natural gas (LNG) exports figure to help keep prices elevated into early 2022, EIA said.

In the latest STEO, EIA reported an average Henry Hub spot price of $5.51 for October, up from $5.16 in September and the $3.25 average seen through the first half of 2021.

The steep gains for the domestic benchmark in recent months have coincided with continued power generation demand for the fuel even at higher prices, along with strong demand for LNG overseas, according to EIA.

The latest STEO calls for Henry Hub prices to average $5.53 during November through February before declining to an average of $3.93 in 2022 amid higher production and slowing growth in LNG exports.

EIA said it expects withdrawals from Lower 48 natural gas stocks this winter to come in close to five-year average levels.

“We expect that factor, along with rising U.S. natural gas exports and relatively flat production through March, will keep U.S. natural gas prices near recent levels before downward price pressures emerge,” researchers said. “Because of uncertainty around seasonal demand, we expect natural gas prices to remain volatile over the coming months, with winter temperatures to be a key driver of demand and prices.”

How Much Did LNG Exports Increase?

Wide differentials between domestic and overseas prices supported a sequential increase in LNG exports in October, with exports up 0.3 Bcf/d to 9.8 Bcf/d on average, according to the latest STEO. Exports are set to increase further this winter, averaging 11.0 Bcf/d from November through March, EIA said.

“We expect high levels of LNG exports to continue into 2022, averaging 11.5 Bcf/d for the year, up 17% from 2021,” researchers said. “The forecast reflects our assumption that global natural gas demand remains high and several new liquefaction trains…enter service.”

Lower 48 storage exited October at more than 3.6 Tcf, or 3% below the five-year average. Injections lagged the five-year average during the summer, but “in recent weeks, storage levels have moved closer to average levels as injections outpaced the five-year average in September and October,” EIA noted. 

The agency predicted a total 2.1 Tcf draw on inventories for the winter, which would put end-March stockpiles at 1.6 Tcf, or 4% below the prior five-year average.

Domestic dry natural gas production rose to 94.9 Bcf/d on average in October from 94.5 Bcf/d in September, EIA said. Output average 91.9 Bcf/d for the first half of 2021. 

EIA said it expects production to climb to 95.2 Bcf/d on average through the remainder of the November-March heating season. Supply is then poised to rise to 96.7 Bcf/d for 2022 overall, a result of strong commodity prices incentivizing enough drilling gains to grow production, according to the agency.