OIL PRICES 2023: $94 - $98

U.S. EIA -   Oct. 12, 2022 - SHORT-TERM ENERGY OUTLOOK NOVEMBER 2022

• The November 2022 Short-Term Energy Outlook (STEO) marks the release of our new text format. We have reconfigured the text to provide readers with discussions and visualizations we think best convey our energy forecast and its key drivers. 

• Uncertainty in macroeconomic conditions could significantly affect energy markets in the forecast period. Based on the S&P Global macroeconomic model, we now expect U.S. GDP will fall slightly in 2023, which we forecast will contribute to a drop in total U.S. energy consumption next year.

• We estimate U.S. natural gas inventories ended October 2022 at more than 3.5 trillion cubic feet (Tcf), which is 4% below the five-year average and higher than what we had been forecasting in recent months. They fall in our forecast by 2.1 Tcf this winter to 1.4 Tcf by the end of March 2023. This withdrawal would be similar to the five-year average and result in inventories that are 8% below the five-year average at the end of March 2023. 

• Because of higher-than-expected storage levels heading into winter our forecast natural gas spot price at Henry Hub averages about $6 per million British thermal units (MMBtu) across 4Q22 and 1Q23, which is more than $1/MMBtu lower than we forecast in the October STEO. We expect natural gas prices will decline after January as the deficit to the five-year average in inventories decreases.

• We expect renewable sources to provide 22% of U.S. electricity generation in 2022 and 24% in 2023 as generation from natural gas declines from 38% in 2022 to 36% in 2023. The increase in renewables generation comes mostly from solar and wind capacity additions. 

• U.S. distillate fuel inventories average 17% below the five-year average in our forecast for 2023. We estimate distillate inventories were 104 million barrels at the end of October, the lowest end-of-October level since 1951.

• Retail heating oil and diesel prices will continue to average more than $5 per gallon for the rest of 4Q22. We expect a slightly contracting U.S. economy will reduce distillate prices in the first half of 2023 (1H23). However, the EU’s ban on seaborne imports of petroleum products from Russia creates supply uncertainty for distillate markets in early 2023.

• Higher heating oil prices and consumption, due to colder forecasted temperatures this winter, result in our expectation that the average U.S. home that uses heating oil as its primary space heating fuel will see expenditures increase by 45% compared with last winter. In last month’s Winter Fuels Outlook, we forecast expenditures would rise 27% over last winter in the baseline. 

• We forecast OPEC crude oil production will fall in November and December. Annual OPEC  production averages 28.9 million barrels per day (b/d) in 2023, up by 0.3 million b/d from 2022.

• Growth in OPEC and non-OPEC oil production—most notably production in the United States— keeps the Brent crude oil price in our forecast lower on an annual average basis in 2023 than in 2022. However, we expect the Brent crude oil price will begin rising in 2H23.

Global oil markets 

Crude oil production: On October 5, 2022, OPEC+ producers agreed to reduce crude oil production targets by 2.0 million barrels per day (b/d) from their previously stated targets beginning in November 2022. The announcement had a limited effect on our global oil production forecast in the October STEO when the cuts were first incorporated because we had already included an expectation that OPEC+ would not meet the previously stated production targets. We expect that Saudi Arabia, Kuwait, and the United Arab Emirates will account for most of OPEC’s share of the cut, while the forecast production for other OPEC members remains largely unchanged from our assessment made before the October 5 announcement. Total OPEC crude oil production in our forecast falls from an average of 29.2 million b/d in the third quarter of 2022 (3Q22) to 28.6 million b/d in 4Q22, largely unchanged from last month’s STEO forecast. OPEC crude oil production in the forecast averages 28.9 million b/d in 2023. 

Among the non-OPEC participants in OPEC+, the majority of the reductions in OPEC+ production will come from Russia, where we expect production declines will materialize as the result of Russia’s fullscale invasion of Ukraine and sanctions imposed on Russia, rather than the newly announced production cuts. We expect that Russia’s total liquids production will fall from an average of 10.9 million b/d in 3Q22 to 10.8 million b/d in 4Q22, before falling further to an average of 9.3 million b/d for all of 2023. 

This forecast is subject to significant uncertainty around the extent to which upcoming EU sanctions will impact trade flows and the ability for oil suppliers in Russia to find alternative shipping arrangements and buyers.

We expect global oil inventory levels to begin to fall again in early 2023, after increasing by an estimated 0.8 million b/d in 3Q22. We expect total global oil inventories will decline by 1.2 million b/d in 1Q23, after a forecast build of 0.2 million b/d in 4Q22. We forecast global oil inventories will fall by 0.3 million b/d in 2023.

Crude oil prices: The Brent crude oil spot price averaged $93 per barrel (b) in October. We expect the Brent price will average near that price through 1H23. Weakening global economic conditions, which could limit oil demand growth, create the potential for oil prices to end up lower than our forecast.

Higher-than-forecast oil prices could stem from supply disruptions resulting from the EU’s impending bans on the seaborne import of crude oil and petroleum products from Russia. Despite increasing concerns around weakening global economic conditions, we forecast that global oil consumption will outpace global oil production in 2023, which will contribute to increasing oil prices in 2H23. We forecast the Brent crude oil price will rise from an average of $94/b in 1H23 to an average of $98/b in 4Q23, averaging $95/b for all of 2023.

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