EIA head outlines oil, gas forecasts and uncertainties

By Patrick C. Miller | May 29, 2018

Recent oil price increases pushing $80 per barrel aren’t expected to last to the end of the year, according to Linda Capuano, administrator, U.S. Energy Information Administration (EIA).

Speaking to attendees of the Williston Basin Petroleum Conference in Bismarck, North Dakota, last week, Capuano said the agency expects Brent crude prices to average about $70 a barrel at the end of 2018, which is an improvement over the $54 per barrel average at the end of 2017. In 2019, IEA expects oil prices to fall by $5 per barrel on average.

EIA forecasts that the global total liquid fuels supply should grow by 2.4 million barrels per day in 2018 and by 2.2 million in 2019, with the U.S. and Canada accounting for 92 percent of growth in 2018 and 83 percent in 2019.

“The slowing growth rate in 2019 reflects the forecast of modestly declining oil prices that followed two years of generally increasing prices,” Capuano explained. “With lower expected prices, producers will not be encouraged to add drilling rigs at a faster rate that will push production to more marginally productive plays.”

Capuano noted the factors that make predicting oil prices uncertain, such as economic growth, the potential impact of tariffs on international trade, hurricanes, OPEC policies and events in Iran and Venezuela.

“EIA forecasts that 2018 supply and consumption levels will be relatively even,” she said. “However, recent price increases have caused EIA to decrease its 2019 assumptions for U.S. crude oil production growth.” The agency will release a new Short-Term Energy Outlook next month.  

EIA expects strong U.S. growth driven by crude oil production and hydrocarbon gas liquids (HGL) production. Of the forecast growth of 2 million barrels per day in 2018, 1.4 million comes from crude, with the Permian Basin providing more than 800,000 barrels per day in growth in 2018.

“If EIA’s forecast is achieved, the U.S. crude oil production will average 10.7 million barrels per day in 2018, which would be the largest annual level on record,” Capuano said. “The higher expected U.S. production contributes to forecasted global oil inventory growth, which is expected to put downward pressure on crude oil prices.”

Capuano also noted that U.S. oil imports have continued to decline since peaking in 2005, a trend EIA expects to continue through this year and next year. “The decline in net imports reflects steady export growth driven by strong crude oil and HGL production growth,” she said. “Imports declined from 2007 to 2015, but have leveled since 2016. However, net imports have continued to fall because of growing exports.”

Imports have leveled off the last two years because of transport constraints that occur when coastal refineries don’t receive enough crude by pipeline, Capuano said. In addition, full gasoline and diesel pipelines to the East Coast cause refineries in that region to continue to import oil. In addition, some Gulf Coast and Midwest refineries continue to favor heavy crude rather than the light crude from U.S. shale plays, she explained.

As with oil production, EIA is also forecasting record growth in natural gas production, with most of the increase coming from Appalachia, the Permian and the Haynesville. “Appalachia is expected to contribute the most, partly because of increasing pipeline connectivity, which improves wellhead economics for producers,” Capuano said.