The U.S. Energy Information Administration cut its crude oil price outlook through 2021 as the prospect of near-record demand loss and unprecedented stockpile builds weighs on the market in the throes of a global pandemic.
In its latest "Short-Term Energy Outlook" released April 7, the EIA projected that West Texas Intermediate spot crude oil prices will decline from an average of $57.02 per barrel in 2019 to $29.34/bbl in 2020 before averaging $41.12/bbl in 2021. The 2020 and 2021 projections are down 23.2% and 18.4%, respectively, from the prior forecast.
In 2019, Brent crude oil averaged $64.37/bbl. The EIA expects the global benchmark price to fall to $33.04/bbl in 2020, down 23.7% from the prior forecast, before climbing to $45.62/bbl in 2021, down 17.6% from the prior forecast.
"Oil and other financial markets reached all-time high levels of volatility in March," the EIA said. "Several economic indicators suggest the global economy entered a recession, primarily as a result of containment efforts related to the 2019 novel coronavirus disease."
The federal agency estimates that 2020 will bring the largest year-over-year percentage decline in global liquids consumption "since at least 1990" and the second-largest U.S. percentage decline since 1949, when the EIA began tracking consumption changes.
The abrupt decline in demand will lead global petroleum stockpiles to climb at a record rate of 11.4 million barrels per day.
"Upstream supply projects from countries outside [of OPEC] require years of development and, once brought online, continue producing in low oil price environments as operating costs per barrel are generally low," the EIA said.
Through April 7, producers have slashed more than $61 billion from capital spending budgets. Exxon Mobil Corp. announced it will cut its planned 2020 spending by $10 billion, or more than 30% from prior guidance.
The EIA forecasts U.S. crude oil production will approach 2018 levels in 2021. Production averaged 10.99 million barrels per day in 2018 before climbing to a record 12.23 million barrels per day in 2019. The EIA forecast that U.S. crude oil production will average 11.76 million bbl/d in 2020 before falling to 11.03 million bbl/d in 2021, for a 9.5% and 12.9% respective decline from the prior forecast.
During 2019, West Texas Intermediate traded at an average $7.35/bbl discount to Brent. The government expects the average discount to narrow to $3.70/bbl in 2020 before climbing to $4.50/bbl in 2021.