EIA Calms Waters With Upbeat Oil Production Forecast

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The latest monthly market report from the Energy Department's statistical arm shows an upward revision to both crude oil prices and domestic production, with long-term forecasts showing net gains in U.S. output to 2050.

Globally, the U.S. Energy Information Administration (EIA) expects markets will be more or less balanced for the rest of the year. Global inventories of crude oil increased by 400,000 barrels per day (BBL/d) on average last year, relative to 2021 levels.

This year, global inventories are expected to swell by 1.1 million BBL/d by the first quarter and hold steady throughout the second half of the year.

That comes even after the Organization of the Petroleum Exporting Countries (OPEC) and its non-member state allies, including Russia, agreed to cut 1.6 million BBL/d from their collective production come May.

EIA, however, said the decision would be offset somewhat by the 300,000 BBL/d increase in Russia's liquid fuels production over the remainder of the year. Dark voyages, where vessels travel without their tracking systems turned on, could mean there's more barrels on the water than expected.

U.S. crude oil production, meanwhile, seems to offset any perceptions of a supply-side shortage. The EIA in its latest monthly report estimated that total crude oil production would average 12.54 million BBL/d this year, an upward revision of 100,000 BBL/d from the prior month. Levels next year average 12.75 million BBL/d, some 120,000 BBL/d higher than the forecast from the March report.

Shale oil accounts for about 70% of total U.S. production, which averaged 12.46 million BBL/d in January, the last full month for which the EIA published data.

In its annual outlook report, the EIA estimated that in its base case, U.S. oil and gas liquids production will rise slowly to about 22 million barrels of oil equivalent per day (boe/d) in 2050. Its most pessimistic forecast puts total liquids at 12 million boe/d in 2050, though the U.S. remains a net exporter of petroleum products and of natural gas through 2050 in all forecast scenarios.

But even against a forecast that suggests markets are largely balanced, the EIA raised its forecast for Brent crude oil by $2 per barrel from last month's report to $85 per barrel in 2023. Brent was trading at closer to $87 per barrel mid-week, though the EIA's expectations on Brent suggest early-month calls for $100 crude oil on the back of OPEC cuts was largely an exaggeration.

"The higher price forecast reflects a forecast for less global production in 2023 and a relatively unchanged outlook for global oil consumption," EIA's report read. "Despite our higher price forecast, recent issues in the banking sector raise the potential that economic and oil demand growth will be lower than our forecast, which has the potential to result in lower oil prices."

That said, "recent issues" is not the same as describing the situation as a crisis. James Bullard, the chairman of the Federal Reserve Bank of St. Louis, said in early April that fears that the collapse of Silicon Valley Bank and the shotgun wedding for UBS and struggling Credit Suisse were largely overblown.

"(F)inancial stress and financial conditions metrics as of today remain low compared with levels observed during the global financial crisis of 2007-2009 or during the onset of the pandemic in March-April 2020," he said.

On Wednesday, the Labor Department showed that consumer prices climbed by 5% over the 12-month period ending in March, the slowest increase annually since May 2021. Nevertheless, the contraction largely reflects lower energy prices relative to year-ago levels and a decrease in cost for a used vehicle.

Groceries, rents, transportation services and electricity are all much more expensive than last year, with the latter coming in at 10.2% higher than year-ago levels. A recent report from the Federal Reserve Bank of Dallas, meanwhile, shows evictions and credit card delinquencies are elevated now that pandemic-era support programs are over.

Most analysts expect the Fed will decide on another rate hike next month, keeping pressure on the economy. The EIA, however, is suggesting the overall market will remain balanced for the remainder of the year.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).