Release Date: February 11, 2020

Forecast Highlights

Global liquid fuels

  • EIA expects global petroleum and liquid fuels demand will average 100.3 million barrels per day (b/d) in the first quarter of 2020. This demand level is 0.9 million b/d less than forecast in the January STEO and reflects both the effects of the coronavirus and warmer-than-normal January temperatures across much of the northern hemisphere. EIA now expects global petroleum and liquid fuels demand will rise by 1.0 million b/d in 2020, which is lower than the forecast increase in the January STEO of 1.3 million b/d in 2020, and by 1.5 million b/d in 2021.
  • EIA’s global petroleum and liquid fuels supply forecast assumes that the Organization of the Petroleum Exporting Countries (OPEC) will reduce crude oil production by 0.5 million b/d from March through May because of lower expected global oil demand in early 2020. This OPEC reduction is in addition to the cuts announced at the group’s December 2019 meeting. EIA now forecasts OPEC crude oil production will average 28.9 million b/d in 2020, which is 0.3 million less than forecast in the January STEO. In addition to these production cuts, EIA’s lower forecast OPEC production reflects ongoing crude oil production outages in Libya during the first quarter. In general, EIA assumes that OPEC will limit production through all of 2020 and 2021 to target relatively balanced global oil markets.
  • Global liquid fuels inventories fell by roughly 0.1 million b/d in 2019, and EIA expects they will grow by 0.2 million b/d in 2020. Although EIA expects inventories to rise overall in 2020, EIA forecasts inventories will build by 0.6 million b/d in the first half of the year because of slow oil demand growth and strong non-OPEC oil supply growth. Firmer demand growth as the global economy strengthens and slower supply growth later in the year contribute to forecast inventory draws of 0.1 million b/d in the second half of 2020. EIA expects global liquid fuels inventories will decline by 0.2 million b/d in 2021.
  • Brent crude oil spot prices averaged $64 per barrel (b) in January, down $4/b from December. Brent prices fell steadily through January and into the first week of February, closing at less than $54/b on February 4, the lowest price since December 2018, reflecting market concerns about oil demand. EIA forecasts Brent prices will average $61/b in 2020; with prices averaging $58/b during the first half of the year and $64/b during the second half of the year. EIA forecasts the average Brent prices will rise to an average of $68/b in 2021.
  • Gasoline prices: The front-month futures price of reformulated blendstock for oxygenate blending (RBOB, the petroleum component of gasoline used in many parts of the country) settled at $1.50 per gallon (gal) on February 6, down 21 cents/gal from January 2, 2020. The RBOB–Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) increased by 6 cents/gal to settle at 19 cents/gal during the same period. Almost all of this increase was in the first week of February, when RBOB crack spreads rose after the RBOB and Brent contracts rolled to the next contract month. Despite the recent increase, monthly average RBOB crack spreads were lower in January compared with December, likely because of low U.S. gasoline demand.RBOB prices and crack spreads tend to be at their lowest during November and December, and they usually begin increasing in January. However, January 2020 deviated from this trend as monthly average RBOB prices and RBOB crack spreads fell by 5 cents/gal and 2 cents/gal, respectively, relative to December. The decline in RBOB crack spreads is the third consecutive month of month-on-month declines, the longest such streak since November 2018. The downward pressure on prices is supported by record inventory levels. Stocks of motor gasoline for the week ending January 24 reached the highest level ever recorded in EIA weekly data going
    back to 1990. Both the increase in gasoline inventories and the decline in RBOB prices and crack spreads likely stem from a broader decline in gasoline demand. According to EIA estimates, U.S. consumption of motor gasoline in January declined 5% from the previous month to reach a 36-month low of 8.6 million barrels per day (b/d).
  • Ultra-low sulfur diesel prices: The ultra-low sulfur diesel (ULSD) front-month futures price settled at $1.67/gal on February 6, 2020, a decrease of 36 cents/gal from January 2, 2020. The ULSD–Brent crack spread (the difference between the price of ULSD and the price of Brent crude oil) decreased 9 cents/gal to settle at 36 cents/gal during the same period. The decline in crack spreads likely reflects low heating oil demand because of warmer-than-expected weather and market concerns over global economic growth.U.S. distillate inventories recorded a 4.1 million barrel month-on-month increase in January, a
    rarity for a month in which inventories typically fall. The increase likely reflects the warmerthan-normal U.S. winter. Based on data from the National Oceanic and Atmospheric Administration (NOAA), EIA estimates that U.S. heating degree days (HDD) in January were 18% lower than the 10-year (2010–19) average. However, at 143.2 million barrels, U.S. distillate inventories remain lower than the five-year (2015–19) average of 149.0 million barrels, suggesting some possible tightness in distillate markets. U.S. distillate inventories have not exceeded the previous five-year average since February 2018, and January 2020 retail prices for on-highway diesel fuel were the highest of any January since 2014. EIA, however, forecasts that prices for on-highway diesel fuel will decline by 19 cents/gal in February, following the recent decline in crude oil prices and ULSD crack spreads.
  • Jet fuel prices: Prices for jet fuel sold in key Asian markets fell sharply in January. The five-day moving average Singapore crack spread for jet fuel against the DME Oman crude oil price declined to $9.11 per barrel (b) on February 6, 2020, a decrease of $3.90/b barrel from January 2, 2020. The decline in jet fuel crack spreads likely reflects the large increase in flight cancellations in East Asia’s economies—most notably China—in the wake of the coronavirus.Based on an analysis of publicly available flight data, EIA estimates about 12,000 flights departing from airports located in China, Hong Kong, Taiwan, and Macau were cancelled in January. After factoring in each cancelled flight’s distance and adjusting for an estimate of the fuel efficiency of each route’s assigned aircraft, EIA estimates that cancellations in these four countries reduced demand for jet fuel by approximately 16,000 b/d during January. According to data from the International Energy Agency, China consumed 860,000 b/d of jet fuel and kerosene in 2019, making this loss equivalent to about 2% of 2019 China’s average daily jet fuel consumption. EIA anticipates larger declines during the coming months, assuming the rate of flight cancellations intensifies.

Natural gas

  • In January, the Henry Hub natural gas spot price averaged $2.02 per million British thermal units (MMBtu), as warm weather contributed to below-average inventory withdrawals and put downward pressure on natural gas prices. As of February 6, the Henry Hub spot price had fallen to $1.86/MMBtu, and EIA expects prices will remain below $2.00/MMBtu in February and March. EIA forecasts that prices will rise in the second quarter of 2020, as U.S. natural gas production declines and natural gas use for power generation increases the demand for gas. EIA expects prices to average $2.36/MMBtu in the third quarter of 2020. EIA forecasts that Henry Hub natural gas spot prices will average $2.21/MMBtu in 2020. EIA expects that natural gas prices will then increase in 2021, reaching an annual average of $2.53/MMBtu.
  • U.S. dry natural gas production set a record in 2019, averaging 92.1 billion cubic feet per day (Bcf/d). Although EIA forecasts dry natural gas production will average 94.2 Bcf/d in 2020, a 2% increase from 2019, EIA expects monthly production to generally decline through 2020, falling from an estimated 95.4 Bcf/d in January to 92.5 Bcf/d in December. The falling production mostly occurs in the Appalachian and Permian regions. In the Appalachia region, low natural gas prices are discouraging natural gas-directed drilling, and in the Permian, low oil prices are expected to reduce associated gas output from oil-directed wells. In 2021, EIA forecasts dry natural gas production to stabilize near December 2020 levels at an annual average of 92.6 Bcf/d, a 2% decline from 2020, which would be the first decline in annual average natural gas production since 2016.
  • EIA estimates that U.S. working natural gas inventories ended January at more than 2.6 trillion cubic feet (Tcf), 9% higher than the five-year (2015–19) average. EIA forecasts that total working inventories will end March at almost 2.0 Tcf, 14% higher than the five-year average. In the forecast, inventories rise by a total of 2.1 Tcf during the April through October injection season to reach almost 4.1 Tcf on October 31, which would be the highest end-of-October inventory level on record.