Release Date: Feb. 8, 2022

Forecast Highlights

Global liquid fuels

  • The February Short-Term Energy Outlook (STEO) assumes U.S. GDP grew by 5.7% in 2021 and will grow by 4.2% in 2022 and by 2.8% in 2023. We use the IHS Markit macroeconomic model to generate our U.S. economic assumptions. Global macroeconomic assumptions in this forecast are from Oxford Economics and include global GDP growth of 4.4% in 2022 and 4.0% in 2023, compared with growth of 5.8% in 2021. A wide range of potential macroeconomic outcomes could significantly affect energy markets during the forecast period. In addition, the evolving effects of consumer behavior on energy demand because of the pandemic present a wide range of potential outcomes for energy consumption. Supply uncertainty in the forecast results from the potential for disruptions, the production decisions of OPEC+, and the rate at which U.S. oil and natural gas producers increase drilling.
  • Brent crude oil spot prices averaged $87 per barrel (b) in January, a $12/b increase from December 2021. Crude oil prices have risen steadily since mid-2020 as result of consistent draws on global oil inventories, which averaged 1.8 million barrels per day (b/d) from the third quarter of 2020 (3Q20) through the end of 2021. We estimate that global oil inventories fell further in January—compared with our expectation of an increase in last month’s STEO—and that commercial inventories in the OECD ended the month at 2.68 billion barrels, which is the lowest level since mid-2014. Oil prices have also risen as result of heightened market concerns about the possibility of oil supply disruptions, notably related to tensions regarding Ukraine, paired with receding market concerns that the Omicron variant of COVID-19 will have widespread effects on oil consumption.

  • We expect Brent prices will average $90/b in February as continuing draws in global oil inventories in our forecast keep crude oil prices near current levels in the coming months. However, we expect downward price pressures will emerge in the middle of the year as growth in oil production from OPEC+, the United States, and other non-OPEC countries outpaces slowing growth in global oil consumption. This dynamic leads to rising global oil inventories from 2Q22 through the end of 2023, and we forecast the Brent spot price will fall to an average of $87/b in 2Q22 and $75/b in 4Q22. We expect the Brent price will average $68/b for all of 2023. However, low inventory levels create an environment for potentially heightened crude oil price volatility and potential risk for prices to rise significantly if supply growth does not keep pace with demand growth. Global supply chain disruptions have also likely exacerbated inflationary price effects across all sectors in recent months. How central banks respond to inflation may affect economic growth and oil prices during the forecast period.

  • We estimate that 99.0 million b/d of petroleum and liquid fuels was consumed globally in January 2022, an increase of 6.6 million b/d from January 2021. We forecast that global consumption of petroleum and liquid fuels will average 100.6 million b/d for all of 2022, which is up 3.5 million b/d from 2021 and more than the 2019 average of 100.3 million b/d. We forecast that global consumption of petroleum and liquid fuels will increase by 1.9 million b/d in 2023.
  • U.S. regular gasoline retail prices averaged $3.31 per gallon (gal) in January, unchanged from December 2021 and up 98 cents/gal from January 2021. Retail diesel prices averaged $3.72/gal in January, up 8 cents/gal from December and up $1.04/gal from last January. Product prices have risen compared with year-ago levels because of rising crude oil prices and high refining margins. We expect diesel prices will average $3.49/gal from 2Q22 through 4Q22. The forecast decline in prices reflects our expectation of falling crude oil prices, particularly in the second half of 2022 (2H22), as well as lower refining margins as refineries increase throughputs in the coming months.
  • U.S. crude oil production reached almost 11.8 million b/d in November 2021 (the most recent monthly historical data point), the most in any month since April 2020. We forecast that production will rise to an average of 12.0 million b/d in 2022 and 12.6 million b/d in 2023, which would be record-high production on an annual-average basis. The previous annual average record of 12.3 million b/d was set in 2019.

Natural Gas

  • In January, the natural gas spot price at Henry Hub averaged $4.38 per million British thermal units (MMBtu), up from the December average of $3.76/MMBtu. Higher prices in January were a result of colder-than-normal weather in parts of the country, particularly the Northeast and the Midwest where demand increased for natural gas used for space heating and for power generation. STEO uses weather forecasts from the National Oceanic and Atmospheric Administration (NOAA), and NOAA published the forecast we used in this STEO in late January. Temperatures have continued to be cold in parts of the country in early February, which we expect will contribute to Henry Hub prices averaging $4.70/MMBtu for the month. The winter weather forecasts are highly variable and create a significant amount of uncertainty in our price forecast. In addition, global demand for U.S. liquefied natural gas (LNG) has remained high, limiting some of the downward pressure on natural gas prices. We expect natural gas prices could remain volatile over the coming months, and the way that temperatures affect natural gas demand in February and March will be a key driver of how inventories end the withdrawal season, which will be important for natural gas price formation in the coming months.

  • We estimate that U.S. LNG exports averaged 11.2 billion cubic feet per day (Bcf/d) in January 2022, up from 10.4 Bcf/d in 4Q21, supported by large price differences between the Henry Hub price in the United States and spot prices in Europe and Asia. In particular, inventories in Europe remain much lower than their five-year averages and are contributing to strong demand for LNG imports. We expect high levels of U.S. LNG exports to continue into 2022, averaging 11.3 Bcf/d for the year, a 16% increase from 2021. The forecast reflects our assumptions that global natural gas demand remains strong and that expected additional U.S. LNG export capacity comes online.
  • Colder-than-normal temperatures in January resulted in U.S. natural gas inventories falling below the five-year average to end the month at 2.3 trillion cubic feet (Tcf). We expect natural gas inventories to fall by about 730 Bcf for the rest of the withdrawal season, ending March just below 1.6 Tcf, which would be 8% less than the 2017–21 average for that time of year.
  • We expect U.S. consumption of natural gas will average 105.2 billion cubic feet per day (Bcf/d) in February, down 3% from February 2021. Consumption in our forecast declines the most in the residential and commercial sectors, where consumption will average a combined 43.8 Bcf/d, down 10% from last February. We forecast electric power section consumption will be 27.8 Bcf/d in February, down 1% from last February. The changes are partly offset by industrial sector consumption, which grows by 4% from February 2021 in the forecast to average 24.8 Bcf/d for the month.
  • We estimate dry U.S. natural gas production averaged 95.5 Bcf/d in the United States in January, down 2.1 Bcf/d from December 2021. Production in January was lower due, in some part, to freezing temperatures in certain production regions. We forecast natural gas production to average 95.6 Bcf/d in February and 96.1 Bcf/d for all of 2022, driven by natural gas and crude oil price levels that we expect will be sufficient to support enough drilling to sustain production growth. We expect production to rise to an average of 98.0 Bcf/d in 2023.