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Hydrocarbons quarterly outlook: US

Hydrocarbon Engineering,

During the third quarter of this year, despite considerable geopolitical concerns, both US and global crude prices have decreased according to EY. This has been due to a surge in domestic production and weak oil demand growth. Recent US DoE forecasts have projected continued increases in US oil production for the next 5 – 7 years, however the IEA has predicted lower global oil demand growth than previously expected. As a result of this supply and demand spread, Brent prices during Q3 2014 dropped by US$ 14 /bbl and WTI prices lowered by approximately US$ 12 /bbl.

Deborah Byers, the Oil & Gas Leader, EY LLP in the US said, ‘the fact that crude prices declined while geopolitical concerns continue to rise speaks to the truly transformative potential and impact of increasing US crude production. Similarly, the lack of oil demand growth continued to be an influential story both globally and in the US.’


Over the past four years, US WTI benchmark oil prices have fluctuated up and down but have stayed within the US$ 95 – 100 /bbl range. In Q3, according to EY, both global and US crude prices weakened significantly as US supply increased and global oil demand remained rather stagnant. Looking forward, the IEA expects oil demand growth of 0/9% this year, compared with 3.6% in 2010. Despite sluggish global demand, North American oil production has continued to grow. Notably, three unconventional basis accounted for 90% of the almost 3.8 million bpd increase since the start of 2007.

Jim Franks, Oil & Gas Advisory Leader, EY LLP in the USA said, ‘a continuing slide in oil prices would however, threaten some of the expected growth in US oil production, as some cash starved and higher cost producers start to dial back their development plans.’


Late last year and in the early months of this year, natural gas prices rose due to a very cold winter, however they have since fallen to approximately US$ 4/ million Btu, mainly due to ample supply levels. Gas storage levels have also evened out following record seasonal lows during the winter months. Storage is still slightly lower than normal at the moment, however the US shale gas production boom is continuing. The boom in gas production in the US has shifted the price spreads among US gas hubs. Traditionally, gas in the Northeast traded at a premium to Henry Hub. Now however, differentials have shifted and incentives are in place to move gas south. Even though this shift is occurring, there are still many gas infrastructure challenges to overcome in moving Marcellus shale to market along the East Coast, according to EY.

There are also substantial differences in natural gas price by region. Gas prices in Europe and Asia declined sharply over the summer. The Asian spot price fell to US$ 11 /million Btu during the period, however, both Asian and European LNG prices have started to firm up more recently. More US LNG export capacity has been approved and the costs of supplying LNG from the US Gulf Coast to Asia is now expected to be approximately US$ 7 /million Btu.

Byers said, ‘although Asian and European LNG prices are stabilising, the rapid decrease during the summer highlighted the potential for price fluctuations in the market. It also emphasises the desirability of flexible LNG supply that can be shifted around to the most advantageous market.’


EY has reported that US refining margins remained reasonably strong during Q3 2014 while margins elsewhere fell on softening demand. Notional cracking margins on a New York Mercantile Exchange 3-2-1 basis averaged approximately US$ 19 /bbl in Q3, slightly under the US$ 21 /bbl average during the year.

Edited from press release by Claira Lloyd

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