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STEO highlights: US oil output growth to offset production cuts, sanctions

Washington — The OPEC-led production cut agreement, output restraints in Canada, and sweeping new sanctions on Venezuelan crude flows will not be enough to offset US supply growth, which will keep Brent and WTI prices below 2018 levels, the US Energy Information Administration said Tuesday.

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"EIA forecasts that US crude oil production growth will offset decreases in OPEC production throughout the forecast," the agency said in its Short-Term Energy Outlook.

EIA forecasts total world oil production to climb to 104.1 million b/d in December 2020 from 101.83 million b/d in December 2018. An estimated 1.6 million b/d, or roughly 70%, of this 2.27 million b/d global growth will take place in the US, where increased output in the Permian and Gulf of Mexico is expected to fuel continued, record-shattering production, EIA said.

"US production is on pace to average 13 million [b/d] in 2020, which puts the nation on track to set a new production record for a third consecutive year," EIA Administrator Linda Capuano said Tuesday in a statement.

US output growth will keep global oil prices relatively low, EIA said. WTI, for example, is expected to fall to an average $54.79/b in 2019 from an average $65.06/b in 2018, then climb to $58/b in 2020. EIA projects Brent prices to average $61.03/b in 2019 and $62/b in 2020, down from $71.19/b in 2018.

"Despite many uncertainties, EIA believes strong growth in global oil production will put downward pressure on prices," Capuano said Tuesday.

The decline in prices this year will occur amid an agreement by OPEC, Russia and other producing countries to reduce production by 1.2 million b/d and production restraints in Alberta, which EIA estimates caused Canadian oil output to fall by about 400,000 b/d from December to January. In addition, the sanctions the US placed last month on PDVSA, Venezuela's state-owned oil company, could "disrupt regular trade flows and increase the risk for an oil supply outage," EIA said.

While these coordinated output cuts and sanctions are not projected to impact WTI or Brent, however, they are affecting crude oil quality spreads, increasing the price of medium and heavy crudes compared to light crudes, EIA said.

"These countries tend to produce medium and heavy grades of crude oil with higher sulfur content, so a large share of the global oil supply reductions in January has been of this quality," EIA said.

Other highlights:

PRICES

**EIA projects WTI to average $54.79/b in 2019, up 60 cents/b from last month's forecast, and $58/b in 2020, down $2.76/b from last month.

**Brent is projected to average $61.03/b in 2019, up 51 cents/b from last month's forecast, and $62/b in 2020, down $2.76/b from last month.

SUPPLY

**US oil production averaged 12.02 million b/d in January and projected it to climb to 13.07 million b/d by March 2020 and to 13.53 million b/d by the end of next year.

**Oil production in the Gulf is projected to climb from 1.74 million b/d in 2018 to 2.02 million b/d and 2.33 million b/d in 2020.

**Onshore production in the Lower-48 states is expected to climb from 8.74 million in 2018 to 9.9 million b/d in 2019 and 10.37 million b/d in 2020, EIA said.

**OPEC members produced an estimated 30.73 million b/d in January, down from 31.37 million b/d in December.

**EIA sees OPEC production averaging 30.74 million b/d in 2019, down 140,000 b/d from last month's outlook, and 30.49 million b/d in 2020, down 410,000 b/d.

**Saudi Arabia cut production by 400,000 b/d from December to 10.1 million b/d in January, EIA said.

**Sanctions-hit Iran pumped 2.65 million b/d in January, up 50,000 b/d from December and the first increase since October, EIA said.

**Venezuelan output slipped to 1.22 million b/d in January from 1.25 million b/d in December, EIA said.

**While US sanctions imposed against Venezuela's state-owned oil company PDVSA last month "did not cause any immediate loss to global oil availability," EIA said, the measures "may disrupt regular trade flows and increase the risk for an oil supply outage."

**Unplanned outages cut Libya's production to 830,000 b/d in January, compared with 1.15 million b/d in November, EIA said.

DEMAND

**Total world consumption is expected to average 101.45 million b/d in 2019, up from 99.96 million b/d in 2018, and to climb to 102.93 million b/d in 2020.

**Total US consumption is expected to average 20.82 million b/d in 2019, up from 20.47 million b/d in 2018, and to climb to 21.04 million b/d in 2020.

**US motor gasoline demand is expected to average 9.35 million b/d in 2019, up from 9.31 million b/d in 2018, and then to climb to 9.36 million b/d in 2020.

-- Brian Scheid, brian.scheid@spglobal.com

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com