The latest Short-Term Energy Outlook (STEO) issued in April by the Energy Information Agency (EIA) shows that the COVID-19 pandemic has caused significant negative changes in energy fuel supply and demand patterns.
Crude oil prices, in particular, have fallen significantly since the beginning of 2020, largely driven by the economic contraction caused by COVID-19 and a sudden increase in crude oil supply following the suspension of previously agreed upon production cuts among the Organization of the Petroleum Exporting Countries (OPEC) and partner countries. Similar uncertainties persist across EIA’s outlook for other energy sources, including natural gas and electricity.
EIA forecasts that the United States will return to being a net importer of crude oil and petroleum products in the third quarter of 2020 and remain a net importer in most months through the end of the forecast period. This is a result of higher net imports of crude oil and lower net exports of petroleum products.
Net crude oil imports are expected to increase because as US crude oil production declines, there will be fewer barrels available for export. On the refined petroleum side, net exports will be lowest in the third quarter of 2020, when US refinery runs are expected to decline significantly.
Brent crude oil prices averaged $32/barrel (b) in March, a decrease of $24/b from the average in February and the lowest monthly average since January 2016. EIA forecasts Brent crude oil prices will average $33/b in 2020, $10/b lower than in last month’s STEO and down from an average of $64/b in 2019. EIA expects prices will average $23/b during the second quarter of 2020 before increasing to $30/b during the second half of the year. EIA forecasts that average Brent prices will rise to an average of $46/b in 2021, $10/b lower than forecast last month, as a return to declining global oil inventories puts upward pressure on prices.
EIA estimates global petroleum and liquid fuels consumption averaged 94.4 million barrels per day (b/d) in the first quarter of 2020, a decline of 5.6 million b/d from the same period in 2019. EIA expects global petroleum and liquid fuels demand will decrease by 5.2 million b/d in 2020 from an average of 100.7 million b/d last year before increasing by 6.4 million b/d in 2021. Lower global oil demand growth for 2020 in the April STEO reflects growing evidence of significant disruptions to global economic activity along with reduced expected travel globally because of COVID-19.
EIA expects that global liquid fuels inventories will grow by an average of 3.9 million b/d in 2020 after falling by about 0.2 million b/d in 2019. EIA expects inventory builds will be largest in the first half of 2020, rising at a rate of 5.7 million b/d in the first quarter and increasing to builds of 11.4 million b/d in the second quarter as a result of widespread travel limitations and sharp reductions in economic activity. Firmer demand growth as the global economy begins to recover and slower supply growth will contribute to global oil inventory draws beginning in the fourth quarter of 2020. EIA expects global liquid fuels inventories will decline by 1.7 million b/d in 2021.
EIA forecasts significant decreases in US liquid fuels demand during the first half of 2020 as a result of COVID-19 travel restrictions and significant disruptions to business and economic activity. EIA expects that the largest impacts will occur in the second quarter of 2020, before gradually dissipating over the course of the next 18 months.
EIA expects US motor gasoline consumption to fall by 1.7 million b/d from the first quarter of 2020 to an average of 7.1 million b/d in the second quarter, before gradually increasing to 8.9 million b/d in the second half of the year. US jet fuel consumption will fall by 0.4 million b/d from the first quarter of 2020 to average 1.2 million b/d in the second quarter. US distillate fuel oil consumption would see a smaller decline, falling by 0.2 million b/d to average 3.8 million b/d over the same period. In 2020, EIA forecasts that US motor gasoline consumption will average 8.4 million b/d, a decrease of 9% compared with 2019, while jet fuel and distillate fuel oil consumption will fall by 10% and 5%, respectively over the same period.
For the April–September 2020 summer driving season, EIA forecasts US regular gasoline retail prices will average $1.58 per gallon (gal), down from an average of $2.72/gal last summer (Summer Fuels Outlook). The lower forecast gasoline prices reflect lower forecast crude oil prices and significantly lower gasoline demand in the second quarter of 2020 driven by COVID-19 travel restrictions and disruptions to domestic economic activity. For all of 2020, EIA expects US regular gasoline retail prices to average $1.86/gal and gasoline retail prices for all grades to average $1.97/gal.
EIA has revised its current forecast of domestic crude oil production down from the March short term energy outlook (STEO), as a result of lower crude oil prices. EIA forecasts US crude oil production will average 11.8 million b/d in 2020, down 0.5 million b/d from 2019. In 2021, EIA expects US crude production to decline further by 0.7 million b/d. If realized, the 2020 production decline would mark the first annual decline since 2016. Typically, price changes impact production after about a six-month lag. However, current market conditions, combined with the COVID-19 pandemic, will likely reduce this lag as many producers have already announced plans to reduce capital spending and drilling levels.