With no clear end in sight to the pandemic and concerns growing over the spread of the delta variant, market concerns about oil demand impacts are fostering continued declines in crude oil prices, the US Energy Information Administration said Sept. 8 in its latest Short-Term Energy Outlook.
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The agency cut its 2021 estimate for WTI crude prices by 24 cents/b to $65.69/b and expects prices to fall further in 2022 to average $62.37/b. Similarly, the EIA trimmed its Brent crude spot price estimate for 2021 by 10 cents/b to $68.61/b, while maintaining its 2022 estimate at $66.04/b.
The EIA said steady draws on global oil inventories allowed oil prices to rise in the past year after plummeting at the onset of the pandemic, but "growth in production from OPEC+, US tight oil, and other non-OPEC countries will outpace slowing growth in global oil consumption and contribute to" oil price declines in 2022.
A lower GDP forecast and reactions to the proliferation of the delta variant, including the possibility of travel and other restrictions, prompted the agency to cut its global oil demand growth expectations for 2021 by 250,000 b/d from the prior month. It now sees global oil demand growing by nearly 5 million b/d in 2021 to 97.38 million b/d.
EIA also lowered by 240,000 b/d to 101.01 million b/d its global oil demand estimate for 2022. That would put demand in 2022 almost even with pre-pandemic consumption levels in 2019.
"How the market will continue to process news about further COVID-19 outbreaks, even in countries with rising numbers of vaccinated people, remains an important uncertainty in our forecast," the agency said.
But for the near term, lower crude oil production -- notably from Hurricane Ida knocking offline more than 90% of offshore production in the US Gulf of Mexico as well as reported incidents at Mexican offshore facilities and lower-than-expected output from several non-OPEC countries -- has offset some price effects of lower-than-expected oil demand, the EIA said.
The agency added that actions taken by OPEC+ will also be a key driver of oil price formation in the coming months. "Our forecast assumes that OPEC+ will generally produce at a level that achieves a relatively balanced oil market," it said.
OPEC crude production is expected to average 26.94 million b/d in the third quarter of 2021 and 26.4 million b/d for full-year 2021, a 100,000 b/d reduction from last month's estimate to reflect lowered expectations for Iran's oil production in the second half of the year.
The EIA set its 2022 OPEC production forecast at 28.34 million b/d, a 300,000 b/d decrease from the prior month, driven by expectations that some producers will continue to restrain output to maintain relatively balanced oil markets in 2022.
Pump prices to ease
Despite downward price pressure on oil, US regular gasoline prices averaged $3.16/gal in August, the highest monthly average since October 2014, the EIA said. The agency attributed high pump prices to rising wholesale gasoline margins amid relatively low gasoline inventories. It added that lingering impacts from Hurricane Ida on US Gulf Coast refineries were also pushing up prices.
Some relief at the pump, however, is expected in the fourth quarter, as EIA estimates prices will fall to an average $2.91/gal during that time. That drop reflects EIA's expectation that "gasoline margins will decline from currently elevated levels, both as a result of rising refinery runs as operations return in the first half of September following Hurricane Ida and because of typical seasonality," the report said.
The agency trimmed its 2022 outlook for US oil production by 50,000 b/d to 11.72 million b/d, up from an expected 2021 average of 11.08 million b/d.
The EIA attributes the increase in US production to forecast growth in onshore tight oil production as operators start to increase rig additions, offsetting production decline rates.