EIA and OPEC Update Their Short Term Forecasts

On August 9, 2016, the EIA updated their short-term energy outlook. The full report can be found here. Here are some highlights from the report:

• The EIA estimates that the amount of electricity generated using natural gas reached a record high during July, surpassing the previous record set in July 2015. The record natural gas-fired generation was driven by competitive economics compared with coal (despite recent natural gas price increases) and by warmer-than-normal temperatures that boosted overall electricity generation. For 2016, EIA expects natural gas to fuel 34% of electricity generation compared with 30% for coal. In 2015, natural gas was used to generate slightly less than 33% of electricity, and coal was used to generate slightly more than 33% of electricity. (see our article this week on Natural Gas Use in Electric Power)
• Benchmark North Sea Brent crude oil spot prices averaged $45/barrel (b) in July, a $3/b decrease from June. This was the first monthly decrease since the Brent price fell to a 12-year low of $31/b in January 2016.
• Brent crude oil prices are forecast to average $42/b in 2016 and $52/b in 2017. West Texas Intermediate (WTI) crude oil prices are forecast to be slightly less than Brent in 2016 and the same as Brent in 2017. The current values of futures and options contracts suggest high uncertainty in the price outlook.
• U.S. regular gasoline retail prices this summer (April through September) are forecast to average $2.19/gallon (gal), 6 cents/gal lower than forecast in last month's STEO and 44 cents/gal lower than last summer. U.S. regular gasoline retail prices are forecast to average $2.06/gal in 2016 and $2.26/gal in 2017.
• U.S. crude oil production averaged 9.4 million barrels per day (b/d) in 2015. Production is forecast to average 8.7 million b/d in 2016 and 8.3 million b/d in 2017. This is an increase from 8.2 million b/d forecast last month. EIA estimates that crude oil production for July 2016 averaged 8.6 million b/d, almost 0.2 million b/d below the June 2016 level, and 1.1 million b/d below the 9.7 million b/d reached in April 2015. Domestic monthly oil production is therefore expected to begin consistently rising in late 2017 due in part to higher forecast for oil prices and improvements in drilling productivity.

Natural gas working inventories were 3,288 billion cubic feet (Bcf) on July 29. This level is 13% higher than last year during the same week, and 16% higher than the previous five-year (2011-15) average for that week. EIA projects that natural gas inventories will be 4,042 Bcf at the end of October 2016, which would be the highest end-of-October level on record.

Global oil consumption is expected to exceed supply by 170,000 bpd next year, which is dramatically more than the 10,000 bpd forecast in July’s report . World oil demand is expected to average 97.76 MMbopd in 2017, a 20,000 bopd reduction from last month.   World oil production is expected to average 96.59 MMbopd in 2017, which is down 200,000 bopd from what was projected last month.

On August 10, 2016, OPEC also released their monthly report. Here are the highlights:

• OPEC now sees average oil demand growth of 1.22 mb/d. This is an increase of 30,000 bpd from its previous forecast.
• Total world demand for oil is seen as 94.26 mb/d for the remainder of 2016, and total oil consumption in 2017 of 95.41 mb/d.
• Total 2017 OPEC demand is now estimated at 33.01 mbpd.
• OPEC expects 2017 non-OPEC supply to fall by 150,000 bpd (as opposed to 110,000 bpd previously forecast).
• However, if OPEC keeps output steady, it appears they are forecasting 100,000 bpd surplus in 2017.