2017: OIL MARKET BALANCE
Global Petroleum and Other Liquids
EIA estimates that global petroleum and other liquid fuels inventory builds averaged 1.9 million b/d in 2015. The pace of inventory builds is expected to slow to an average of 0.9 million b/d in 2016. The market is expected to reach balance in 2017, with inventory draws during the second half of the year averaging 0.3 million b/d.
Global Petroleum and Other Liquids Consumption
Global consumption of petroleum and other liquid fuels is estimated to have grown by 1.4 million b/d in 2015. EIA expects global consumption of petroleum and other liquid fuels to increase by 1.4 million b/d in 2016 and by 1.5 million b/d in 2017, mostly driven by growth in countries outside of the Organization for Economic Cooperation and Development (OECD). Non-OECD consumption growth was an estimated 1.0 million b/d in 2015, and it is expected to be 1.3 million b/d in 2016 and 1.5 million b/d in 2017.
This forecast reflects an upward adjustment to India's consumption growth in 2016 and 2017 of about 0.1 million b/d, raising the country's growth to 0.4 million b/d annually, mainly as a result of increased use of transportation fuels and of naphtha for new petrochemical projects. China's consumption of petroleum and other liquid fuels is forecast to grow by 0.4 million b/d in both 2016 and 2017, driven by increased use of gasoline, jet fuel, and hydrocarbon gas liquids (HGL), which more than offset decreases in diesel consumption. The significant rise in the use of HGL in China seen in 2015 will continue through the forecast period as new propane dehydrogenation (PDH) plants increase use of propane.
OECD petroleum and other liquid fuels consumption rose by 0.5 million b/d in 2015. OECD consumption is expected to increase by 0.1 million b/d in 2016 and by less than 0.1 million b/d in 2017. Consumption growth in the United States and South Korea more than offsets decreases in consumption in OECD Europe and Japan in 2016 and 2017.
This forecast also includes a slight downward adjustment to petroleum and other liquid fuels consumption in OECD Europe in 2017 as a result of uncertainty related to the United Kingdom's vote to leave the European Union. EIA expects that the effect on oil consumption in the forecast period will be largely limited to Europe. Uncertainty over the United Kingdom's future relationship with the European Union could contribute to a reduction in business investment and consumer spending that would negatively affect oil demand growth. Additionally, there could be implications for emerging economies if credit availability is reduced—particularly if they rely on European banks, although EIA does not expect this to significantly affect oil consumption in the forecast period.
Crude Oil Prices
The monthly average spot price of Brent crude oil increased by $2/b in June to $48/b, which was the highest monthly average for Brent since October 2015. This was the fifth consecutive increase in the monthly average Brent price, the longest such stretch since May through September 2013. Although monthly average prices increased in June, daily oil prices ended June at slightly lower levels than they began the month. Significant outages of global oil supply contributed to rising oil prices in early June. However, concerns over future economic growth related to the United Kingdom's June 23 vote to exit the European Union and the easing of supply disruptions in Canada contributed to falling oil prices in late June.
EIA expects global oil inventory builds to average 0.6 million b/d in the second half of 2016, limiting upward price pressures in the coming months. Brent prices are forecast to average $48/b during the second half of 2016, which is relatively unchanged from current levels. However, daily and even monthly price variation could be significant as economic and geopolitical events affect market participants' expectations of oil market balances.
EIA expects global oil inventory draws to begin in the third quarter of 2017. The expectation of inventory draws contributes to forecast rising prices in the first half of 2017, with price increases accelerating later in 2017. Brent prices are forecast to average $52/b in 2017, unchanged from last month's STEO. Forecast Brent prices reach an average of $58/b in the fourth quarter of 2017, reflecting the potential for more significant inventory draws beyond the forecast period.
Average West Texas Intermediate (WTI) crude oil prices are forecast to be the same as Brent prices in 2016 and 2017. The relative price parity of WTI with Brent in the forecast period is based on the assumption of competition between the two crudes in the U.S. Gulf Coast refinery market, because transportation price differentials to move the crudes from their respective pricing points to that market are similar.
The current values of futures and options contracts highlight the heightened volatility and high uncertainty in the oil price outlook. WTI futures contracts for October 2016 delivery that were traded during the five-day period ending July 7 averaged $49/b, and implied volatility averaged 37%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in October 2016 at $35/b and $67/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $32/b and $77/b for prices in December 2016. At this time in 2015, WTI for October 2015 delivery averaged $59/b, and implied volatility averaged 31%, with the corresponding lower and upper limits of the 95% confidence interval at $45/b and $79/b.
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GAZPROM - The parties discussed relevant issues related to bilateral cooperation, including the Baltic LNG project. Emphasis was placed on the priority measures aimed at developing a joint design concept (pre-FEED).
BHGE - U.S. Rig Count is up 11 rigs from last week to 1,063, with oil rigs up 8 to 869, gas rigs up 4 to 193, and miscellaneous rigs down 1 to 1. Canada Rig Count is up 13 rigs from last week to 195, with oil rigs up 8 to 127 and gas rigs up 5 to 68.
REUTERS - Brent crude futures had risen $1.02 cents, or 1.3 percent, to $81.28 a barrel by 0637 GMT. The contract dropped 3.4 percent on Thursday following sharp falls in equity markets and indications that supply concerns have been overblown. U.S. West Texas Intermediate (WTI) crude futures were up 80 cents, or 1.1 percent, at $71.77 a barrel, after a 3 percent fall in the previous session. WTI is on track for a 3.5 percent drop this week.
EIA - Brent crude oil spot prices averaged $79 per barrel (b) in September, up $6/b from August. EIA expects Brent spot prices will average $74/b in 2018 and $75/b in 2019. EIA expects West Texas Intermediate (WTI) crude oil prices will average about $6/b lower than Brent prices in 2018 and in 2019.