In its June ‘Short-Term Energy Outlook’ (STEO), the US Energy Information Administration’s (EIA) forecasts that rising global production of petroleum and other liquid fuels (driven by OPEC, Russia, and the US) will limit price increases for global crude oil benchmarks Brent and West Texas Intermediate (WTI).
The EIA forecasts production will increase more rapidly than consumption, ending the large global stock draws seen in the first two quarters of 2021 and limiting upward crude oil price movement.
At its 1 June meeting, OPEC+ (which includes OPEC members and several non-member countries) reaffirmed its commitment to continued production increases in the coming months. The EIA forecasts OPEC’s annual production to average 26.9 million bpd in 2021 and 28.7 million bpd in 2022. It also forecasts that production of petroleum and other liquids in Russia, an OPEC+ participant, will increase and that annual production will average 10.7 million bpd in 2021 and 11.5 million bpd in 2022.
The price of WTI crude oil increased from US$52/bbl in January 2021 to US$65/bbl in May, driving increases in the US crude oil rig count — an indicator of active US crude oil production capacity that is compiled by Baker Hughes. The EIA expects the US crude oil-directed rig count will likely continue rising in response to the rising WTI crude oil price.
The EIA expects crude oil production in the US will increase each quarter through the forecast period, averaging 11.4 million bpd in 4Q21, the highest level since 1Q20, and 11.1 million bpd for all of 2021. The EIA also expect US crude oil production will average 11.8 million bpd in 2022.
Higher crude oil prices and planned OPEC+ production increases contribute to the forecast that global petroleum supply will increase over the next several months, resulting in an essentially balanced market in the second half of 2021. The EIA then expects petroleum inventories to build in 2022 as production outpaces consumption.
Based on this global supply and demand forecast, the EIA expects the Brent crude oil price will average US$68/bbl in 3Q21. The price is then expected to fall to US$64/bbl in 4Q21 and decline further to average US$60/bbl in 2022.
The extent to which countries adhere to the current OPEC+ production agreement and the volume of crude oil entering the market from Iran could push prices higher or lower. Similarly, if US operators add fewer drilling rigs than expected, the result would be lower US crude oil production in 2022, which would also affect prices.
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