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Crude prices to ease on strong US oil output growth, global inventory builds: US EIA

Highlights

EIA lowers oil price outlook for WTI, Brent by more than $9/b

Retail gasoline, diesel prices on the decline in 2023, 2024

Global oil production seen outpacing global oil demand

US oil output seen climbing to 12.81 million b/d in 2024

  • Author
  • Jasmin Melvin
  • Editor
  • Richard Rubin
  • Commodity
  • Agriculture Natural Gas Oil Shipping

Crude and petroleum product prices are expected to decline throughout 2023 and 2024, the US Energy Information Administration said Jan. 10, as an uptick in oil production in the US and elsewhere is seen offsetting declines in Russian oil output and allowing for builds in global oil inventories.

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The US and non-OPEC producers are forecast to add 2.4 million b/d of oil production in 2023 and another 1.1 million b/d in 2024, while Russia's liquid fuels production is expected to fall 1.4 million b/d in 2023 to 9.5 million b/d and dip another 100,000 b/d to average 9.4 million b/d in 2024, the agency said in its January Short-Term Energy Outlook.

The EIA said the US is slated to contribute 40% of global oil output growth in 2023 and 60% in 2024, making it the largest source of production growth in the its forecast, followed by OPEC. The EIA cited US crude production mostly in the Permian as well as production increases of hydrocarbon gas liquids and biofuels as the major drivers of US output growth.

The EIA increased its 2023 outlook for US oil production by 70,000 b/d to 12.41 million b/d and expects output growth to continue into 2024 to put US crude production at 12.81 million b/d. The January outlook is the first to include forecasts for 2024.

Output from Brazil, Canada, Norway and Guyana, a newcomer to the world oil supply market, were also flagged as major sources of liquid fuels production growth in 2023 and 2024. Liquid fuels include mostly crude oil but also refinery volume gain, hydrocarbon gas liquids, biofuels and other oils, according to the EIA.

Factors to watch

However, relatively low capital investment from US oil producers could adversely impact US production growth and start time delays for projects in Brazil, Canada, Norway and Guyana could also impede oil supply growth, the EIA said of uncertainties that could undermine its forecast.

"Any OPEC production cuts would tighten balances and result in higher oil prices than we forecast," the agency added.

Further, the EU's ban on seaborne imports of Russian petroleum products set to take effect Feb. 5 could prove more disruptive than the ban on seaborne Russian crude imports implemented Dec. 5, the EIA said.

"We assume Russia will be able to reroute some of its petroleum exports subject to EU sanctions. But we do not expect all its refined product exports will find new destinations because of limited clean tanker availability, which will cause Russia to reduce their crude oil inputs to refineries and for their crude oil production to continue to decline," the agency said in a supplemental document that took a deeper dive into price assumptions and major risks to its forecast.

Notwithstanding those uncertainties, the EIA expects global oil production to outpace global oil consumption.

The EIA lowered its expectations for global oil demand in 2023 by 340,000 b/d to 100.48 million b/d. Driven primarily by growth in China, India and other non-OECD countries, it expects that demand to tick up in 2024 to 102.2 million b/d, but not enough to overtake the world's oil output, leading to builds in global oil inventories over the next two years that are expected to put downward pressure of fuel prices.

The supplemental document cautioned that China's COVID-related restrictions would play heavily into global oil balances and prices.

"China's consumption could be less than we forecast at first if rising COVID-19 cases cause significant disruptions to economic activity and travel, particularly in early 2023," the EIA said. "China's oil consumption could end up being more than expected in 2024 if the end to COVID-related restrictions ultimately results in higher and more sustained economic growth."

Prices to decline

Still, the EIA forecast that Brent crude would average $83.10/b in 2023, down $9.26 from last month's estimate for the year and 18% below the $100.94/b average for 2022.

The EIA also reduced its 2023 expectations for WTI crude by $9.18 to $77.18/b, dropping from the $94.19/b average seen in 2022.

The agency expects WTI in 2024 at $71.57/b and Brent in 2024 at $77.57/b.

Lower crude prices, as well as falling wholesale refining margins, are expected to pull retail gasoline prices down to an average of $3.32/gal this year, 19 cents below the previous estimate. The EIA sees gasoline prices continuing to decline to an average of $3.09/gal in 2024.

"Diesel prices will remain higher than gasoline prices as the market continues to adjust to disruptions largely related to responses to Russia's full-scale invasion of Ukraine," the EIA said in its outlook. "Russia had been a major supplier of diesel fuel to Europe, which is now importing more diesel from the Middle East and India."

But retail diesel prices are still expected to fall to an average of $4.22/gal this year, down 26 cents from the prior estimate, and to ease further in 2024 to an average of $3.69/gal.