Release Date: June 9, 2020
Global liquid fuels
- Although revisions to EIA’s forecasts in the June STEO are generally smaller than they have been in recent months, this forecast remains subject to heightened levels of uncertainty because mitigation and reopening efforts related to the 2019 novel coronavirus disease (COVID-19) continue to evolve. Reduced economic activity related to the COVID-19 pandemic has caused changes in energy supply and demand patterns in 2020, particularly for petroleum and other liquid fuels. Uncertainties persist across EIA’s outlook for other energy sources, including natural gas, electricity, coal and renewables.
- Daily Brent crude oil spot prices averaged $29 per barrel (b) in May, up $11/b from the average in April. Oil prices rose in May as initial data show global oil demand was higher than EIA had forecast and as adherence to announced production cuts by Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) was high. EIA expects monthly Brent prices will average $37/b during the second half of 2020 and rise to an average of $48/b in 2021. The forecast of rising crude oil prices reflects expected declines in global oil inventories during the second half of 2020 and through 2021. EIA expects high inventory levels and spare crude oil production capacity will limit upward price pressures in the coming months, but as inventories decline into 2021, those upward price pressures will increase.
- EIA forecasts that demand for global petroleum and liquid fuels will average 83.8 million barrels per day (b/d) in the second quarter of 2020, 16.6 million b/d lower than at the same time last year. Lower demand is the result of COVID-19-related shutdowns throughout much of the world. As stay-at-home orders are eased, EIA expects liquid fuels consumption will rise to an average of 94.9 million b/d in the third quarter (down 6.7 million b/d year over year). EIA forecasts that consumption of petroleum and liquid fuels globally will average 92.5 million b/d for all of 2020, down 8.3 million b/d from 2019, before increasing by 7.2 million b/d in 2021.
- EIA expects the supply of liquid fuels globally will average 92.6 million b/d in the second quarter of 2020, down 7.9 million b/d year over year. The declines reflect voluntary supply cuts by OPEC+ and reductions in drilling activity in the United States because of low oil prices. Supply of oil fell by less than demand in the second quarter, and EIA expects supply to be slower to increase. In the forecast, the global supply of oil declines to 92.0 million b/d in the third quarter before rising to an annual average of 97.4 million b/d in 2021. EIA expects OPEC to drive supply growth in 2021.
- EIA expects that global liquid fuels inventories will grow by an average of 2.2 million b/d in 2020. EIA estimates inventories rose from January through May at an average rate of 9.4 million b/d. The builds, which peaked during April, were the result of a sharp decline in global oil demand because of widespread travel limitations and reduced economic activity. EIA estimates that global oil inventories at the end of May stood 1.4 billion barrels higher than they were at the end of 2019. However, EIA now expects global oil inventories will begin declining in June, a month earlier than previously forecast, with draws continuing through the end of 2021. The sooner-than-expected draws are the result of sharper declines in global oil production during June and higher global oil demand than previously expected. EIA expects global liquid fuels inventories will fall at an average rate of 2.5 million b/d from June 2020 through the end of 2021.
- EIA forecasts U.S. liquid fuels consumption will average 15.7 million b/d in the second quarter of 2020, down 4.6 million b/d (23%) from the same period in 2019. The decline reflects travel restrictions and reduced economic activity related to COVID-19 mitigation efforts. EIA expects the largest declines in U.S. oil consumption have already occurred and demand will generally rise during the next 18 months. EIA forecasts U.S. liquid fuels consumption will average 18.4 million b/d in the third quarter of 2020 (down 2.3 million b/d year-over-year) before rising to an average of 19.5 million b/d in 2021. Although that level would be 1.4 million b/d more than EIA’s forecast 2020 consumption, it would be 1.0 million b/d less than the 2019 average.
- Declines in U.S. liquid fuels consumption vary across products. EIA expects jet fuel consumption to fall by 64% year-over-year in the second quarter of 2020, while gasoline consumption falls by 26% and distillate consumption falls by 17%. EIA forecasts the consumption of all three fuels to rise in the third quarter and into 2021 but to remain lower than 2019 levels.
- EIA estimates U.S. crude oil production fell from a record 12.9 million b/d in November 2019 to 11.4 million b/d in May 2020 as Baker Hughes reported the fewest active drilling wells in the United States in their records which go back to 1987. EIA expects U.S. crude oil production will continue to decline, to 10.6 million b/d in March 2021, then increase slightly through the end of 2021. EIA forecasts that U.S. crude oil production will average 11.6 million b/d in 2020, down 0.7 million b/d from 2019. In 2021, EIA expects U.S. crude oil production will average 10.8 million b/d. This 2020 production decline would mark the first annual decline since 2016. Typically, price changes affect production after about a six-month lag. However, current market conditions have shortened this lag as many producers have already curtailed production and reduced capital spending and drilling in response to lower prices.
- In May, the Henry Hub natural gas spot price averaged $1.75 per million British thermal units (MMBtu). EIA forecasts that relatively low natural gas demand will keep spot prices lower than $2/MMBtu through August. However, EIA expects prices will generally rise through the end of 2021. EIA expects that natural gas price increases will be sharpest this fall and winter when they rise from an average of $2.06/MMBtu in September to $3.08/MMBtu in January. Despite EIA’s forecast of record end-of-October storage levels, EIA expects that rising demand heading into winter, combined with reduced production, will cause upward price pressures. EIA forecasts that Henry Hub natural gas spot prices will average $2.04/MMBtu in 2020 and $3.08/MMBtu in 2021.
- EIA expects that total U.S. consumption of natural gas will average 81.9 billion cubic feet per day (Bcf/d) in 2020, down 3.6% from 2019. The decline primarily reflects less consumption in the industrial-sector, which EIA forecasts will average 21.0 Bcf/d in 2020, down 8.7% from 2019 as a result of reduced manufacturing activity.
- U.S. dry natural gas production set a record in 2019, averaging 92.2 Bcf/d. EIA forecasts dry natural gas production will average 89.7 Bcf/d in 2020, with monthly production falling from 96.2 Bcf/d in November 2019 to 83.6 Bcf/d in March 2021, before increasing slightly. Natural gas production declines the most in the Appalachian and Permian regions. In the Appalachian region, low natural gas prices are discouraging producers from engaging in natural gas-directed drilling, and in the Permian region, low crude oil prices reduce associated natural gas output from oil-directed wells. In 2021, EIA’s forecast production of dry natural gas in the United States averages 85.4 Bcf/d. EIA expects production to begin rising in the second quarter of 2021 in response to higher prices.
- EIA estimates that total U.S. working natural gas in storage ended May at almost 2.8 trillion cubic feet (Tcf), 18% more than the five-year (2015–19) average. In the forecast, inventories rise by 2.1 Tcf during the April-through-October injection season to reach more than 4.1 Tcf on October 31, which would be a record.
- EIA forecasts that U.S. liquefied natural gas exports will average 5.6 Bcf/d in the second quarter of 2020 and 3.7 Bcf/d in the third quarter of 2020. EIA expects that U.S. liquefied natural gas exports will decline through the end of the summer as a result of reduced global demand for natural gas.