The U.S. Energy Information Administration (EIA) revised its forecasts for the last quarter of 2019 and the beginning of 2020. Despite oil and gas production increases, the Short-Term Energy Outlook (STEO) expects prices to trend down over the next few months. This is largely due to some recent production halts, trade war issues, and the short-lived loss in supply that led to stock draws in September.
The EIA lowered the forecast for the fourth quarter of 2019 by $1 per barrel (bbl) and $2/bbl for the first quarter of 2020. The expected price for 2019 will be $59/bbl for the remainder of this year, dropping $5/bbl from the year’s average of $64/bbl forecasted previously.
The EIA also forecasts a yearly average price of $60/bbl for 2020. Furthermore, they expect supply growth to keep the market steady, exceeding global demand. Rising global oil inventories during the first half of 2020 indicate to the EIA that prices will remain lower in the latest STEO.
Demand Balance and Spare Capacity Likely Cause of Lower STEO
The loss of supply from Saudi Aramco’s Abqaiq facility initially caused a spike in Brent front-month futures. Oil and gas prices rose nearly 15% on the first trading day immediately after the attack. The concerns quickly dissipated as supplies returned to normal due to Saudi Arabia drawing on inventories to continue exporting crude oil.
The EIA expects OPEC’s spare capacity to return to 2.0 MMbbl in January 2020. In September and October, the US exported 550,000 b/d of crude oil and petroleum products. This was more than it imported according to survey data. So, this marked the first time that US exports exceeded imports since the EIA’s records began in 1949.
Natural Gas Storage Injections Increased Year-on-Year
Storage injections of natural gas for the US exceed the previous five-year averages. A remarkable increase between April and October saw working inventories rise from 28% below the five-year average to 1% higher during this period. This is due to increases in US natural gas production with working inventories reaching 33,762 billion cubic feet (Bcf).
With larger inventories, the price for a million British Thermal Units (MMBtu) averaged at $2.33 for October. The Henry Hub natural gas spot price was down 23 cents from September. However, cold weather led to an increase in early November. For the final two months of 2019, the EIA forecasts natural gas prices to average $2.73 MMBtu. Then it should decrease in 2020 to $2.48 MMBtu.
Clean Energy Boom Expected to Affect Oil and Gas Production in the Next Decade
The economics of clean energy is increasing rapidly. As such, experts now expect a rapid adoption around the globe over the next decade. The technologies and solutions currently available reached an economic tipping point making it cost-competitive with traditional energy sources. The latest estimates now project the expected demand peaks to come much sooner.
According to Bloomberg New Energy Finance (BNEF), the oil industry will reach peak demand in 2030. After that point, they predict that global demand will decrease. They also predict renewable technologies will replace oil as the world’s biggest energy source.
Regardless of the changing trends in oil and gas, MSI provides innovative protective products for improving the integrity of OCTG. For more information on our protective applications and solutions, speak to one of our agents online, or give us a call at 877-276-9208.