U.S. OIL DOWN
In the May Short-Term Energy Outlook (STEO), released on May 12, EIA raised its 2015 price forecast for North Sea Brent crude oil to an annual average of $61/barrel (b), $1/b higher than in the April STEO. At the same time, EIA lowered its 2016 forecast of Brent prices to $70/b, $5/b lower than in the April STEO.
The May STEO Brent crude price projection for the second quarter of 2015 averages $63/b, $8/b higher than last month's forecast. The higher forecast reflects actual prices in April that were above EIA's prior STEO forecast. Several factors contributed to higher crude oil prices in April, including indications of stronger global oil demand growth, expectations for declining U.S. tight oil production in the coming months, and the growing risk of unplanned supply outages in the Middle East and North Africa. These developments, along with other factors, more than outweighed the effects of rising global oil inventories during April. Brent prices are now forecast to remain near the $63/b level for the rest of this year.
Forecast global demand growth for 2015 in the May STEO is 1.2 million barrels per day (b/d), 0.2 million b/d above the prior forecast. The main drivers of this revision were OECD Europe, as well as non-OECD Asia (not including China), where initial data for 2015 indicate that oil demand growth has been strong in several countries.
EIA's Drilling Productivity Report (DPR) for April had forecast a 57,000 b/d decline during May in total crude oil production from seven U.S. regions, which together accounted for about 95% of U.S. crude oil production growth during 2011-13. This was the first time the DPR had indicated a decline in expected production since the report was first issued in October 2013. Signs of declining U.S. tight oil production amid lower crude oil prices have been a widely watched market indicator of firming oil market balances. The latest DPR, released on May 11, expects a further decline in crude oil output from the seven regions during June. Overall, EIA is now projecting U.S. oil production to average 9.2 million b/d in 2015, 40,000 b/d lower than in last month's forecast.
Despite a stronger global demand growth forecast and a lower crude oil production forecast in the United States, oil inventories are now expected to grow by 0.9 million b/d during the second half of 2015, compared with expected growth of 0.5 million b/d in the prior STEO. The high builds compared with the last forecast reflect an upward revision to OPEC crude oil production.
While second-half 2015 inventory builds moderate from the 1.8 million b/d level in the first half of the year, the continuing builds do not support rising prices.
In 2016, EIA projects markets to be more balanced than in 2015. However, global oil inventories are still expected to build by an average of between 0.2 million b/d and 0.3 million b/d for the year, compared with last month's forecast that inventory was expected to be flat. The revised 2016 market balance results from an upward revision to OPEC production that is only partially offset by higher demand and lower U.S. production.
As oil markets continue to adjust to a lower-price environment and some geopolitical risks are heightened, uncertainty in oil markets is high, and several factors could cause oil prices to deviate significantly from current projections. Among these factors is the potential lifting of sanctions against Iran if a comprehensive agreement is reached. In such a case, EIA estimates that the re-entry of more Iranian barrels could result in a $5/b-$15/b lower baseline STEO price forecast for 2016 (see the analysis box on page 5 of the April 2015 STEO for further discussion). However, the potential timing and details of any suspension of sanctions are uncertain. The level of unplanned production outages could also vary from forecast levels for a wide range of producers, including OPEC members Libya, Iraq, Nigeria, and Venezuela. Additionally, the degree to which non-OPEC supply growth and global demand growth are affected by lower oil prices is only beginning to become apparent in oil data, and these indicators warrant close attention in the coming months as they will also affect market balances and prices.
The current values of West Texas Intermediate futures and options contracts for December 2015 delivery suggest (Market Prices and Uncertainty Report) the market's expectations (at the 95% confidence interval) for WTI prices in that month range from $41/b to $97/b. While the Brent options market is not liquid enough to make a similar calculation, the range of December 2015 Brent prices is likely to be similar to the WTI range.
Average U.S. gasoline and diesel fuel prices rise
The U.S. average retail price for regular gasoline increased three cents from the prior week to $2.69 per gallon as of May 11, 2015, 98 cents per gallon lower than the same time last year. The Rocky Mountain price increased seven cents to $2.63 per gallon. The Gulf Coast price rose five cents to $2.44 per gallon. The East and West Coast prices each rose three cents, to $2.61 per gallon and $3.44 per gallon, respectively. The Midwest price increased one cent to $2.51 per gallon.
The U.S. average diesel fuel price increased two cents from last week to $2.88 per gallon, $1.07 per gallon less than the same time last year. The Midwest and West Coast prices rose three cents, to $2.75 per gallon and $3.14 per gallon, respectively. The Gulf Coast and East Coast prices increased two cents, to $2.77 per gallon and $3.00 per gallon, respectively. The Rocky Mountain price rose one cent to $2.77 per gallon.
Propane inventories gain
U.S. propane stocks increased by 1.9 million barrels last week to 68.5 million barrels as of May 8, 2015, 30.7 million barrels (81.5%) higher than a year ago. Gulf Coast inventories increased by 2.3 million barrels and East Coast inventories increased by 0.1 million barrels. Midwest inventories decreased by 0.4 million barrels and Rocky Mountain/West Coast inventories decreased by 0.1 million barrels. Propylene non-fuel-use inventories represented 7.3% of total propane inventories.
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PLATTS - National Australia Bank announced Thursday it will no longer provide financing for new thermal coal projects.
Petrobras and ExxonMobil signed a memorandum of understanding regarding a strategic alliance to jointly identify and evaluate potential business opportunities.
ExxonMobil Development Africa B.V. has acquired a 25 percent indirect interest in Mozambique’s gas-rich Area 4 block from Eni and assume responsibility for midstream operations.
U.S. Rig Count is down 1 rig from last week to 930, with oil rigs down 4 to 747, gas rigs up 3 to 183, and miscellaneous rigs unchanged. Canada Rig Count is up 19 rigs from last week to 238, with oil rigs up 22 to 134 and gas rigs down 3 to 104.