nat gas trade

U.S. oil production increased by an estimated 10.8 million b/d in August as Lower 48 operators brought wells back online in response to rising prices after curtailing production amid low demand in the second quarter, according to the U.S. Energy Information Administration (EIA).

In the latest Short-Term Energy Outlook (STEO) issued on Wednesday, EIA said June output was 10.4 million b/d, 0.7 million b/d more than estimated in the last month’s report.  However, even with higher realized production levels, U.S. oil output for 4Q2021 and in 2021 “is relatively unchanged.”

Domestic oil output is forecast to rise to 11.2 million b/d this month as production in the Gulf of Mexico returns following Hurricane Laura.

“However, after September, EIA expects U.S. crude oil production to decline slightly, averaging just under 11.0 million b/d during the first half of 2021 because…new drilling activity will not generate enough production to offset declines from existing wells.”

U.S. drilling activity should climb later in 2021, moving output to an average 11.3 million b/d in 4Q2021. 

“On an annual average basis,” researchers said, “EIA expects U.S. crude oil production to fall from an average of 12.2 million b/d in 2019 to 11.4 million b/d in 2020 and 11.1 million b/d in 2021.”

For natural gas, demand is likely to increase domestically and overseas heading into the winter as production stagnates, pushing Henry Hub spot prices to an average of $3.40/MMBtu in January.

Monthly average spot prices for gas should “remain higher than $3.00/MMBtu for all of 2021, averaging $3.19/MMBtu for the year, up from a forecast average of $2.16/MMBtu in 2020,” forecasters said.

“Higher global forward prices indicate improving netbacks for buyers of U.S. LNG in European and Asian markets for the upcoming fall and winter seasons amid expectations of natural gas demand recovery and potential LNG supply reduction because of maintenance at the Gorgon LNG plant in Australia.

“EIA forecasts that U.S. LNG exports will return to pre-Covid levels by November 2020 and will average more than 9 Bcf/d from December 2020 through February 2021.”

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EIA assumed a decline in 2020 in U.S. gross domestic product, or GDP, of 4.8%, versus an assumed decline in last month’s outlook of 6.1%. EIA also assumed a smaller increase in GDP in 2021 of 3.1%, compared with 3.7% growth previously. 

“EIA expects global consumption of petroleum and other liquid fuels will average 99.6 million b/d in 2021, a reduction of 0.6 million b/d from the August STEO,” forecasters said. 

“The downward revision primarily reflects lower expected growth in China, where EIA forecasts liquid fuels consumption to rise by 1.0 million b/d in 2021 to average 15.0 million b/d. The revised petroleum consumption reflects a more plausible assessment of the country’s energy intensity of economic growth.”

Researchers acknowledged that the forecast “remains subject to heightened levels of uncertainty” because mitigation and reopening efforts related to Covid-19 are evolving. 

“Reduced economic activity related to the Covid-19 pandemic has caused changes in energy demand and supply patterns in 2020. This STEO assumes U.S. gross domestic product declined by 4.6% in the first half of 2020 from the same period a year ago and will rise beginning in the third quarter of 2020, with year/year growth of 3.1% in 2021.” 

The U.S. macroeconomic assumptions are based on forecasts by IHS Markit.

EIA is estimating that demand for petroleum and liquid fuels globally will average 93.1 million b/d for 2020, down 8.3 million b/d from 2019, before increasing by 6.5 million b/d in 2021. The forecast for growth in 2021 is 0.5 million b/d below the August STEO, “largely a result of lower expected consumption growth in China, which EIA now forecasts to grow by 1.0 million b/d in 2021.”