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Short-Term Energy Outlook

Release Date: September 9, 2015  |  Next Release Date: October 6, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Global Petroleum and Other Liquids

Global liquids production continues to outpace consumption, leading to strong inventory builds throughout the forecast period. Global oil inventory builds in the second quarter of 2015 averaged 2.9 million b/d, compared with 1.9 million b/d in the first quarter. The pace of inventory builds is expected to slow in the second half of 2015, to roughly 1.8 million b/d. In 2016, inventory builds are forecast to slow to an average of 1.1 million b/d.

Global Petroleum and Other Liquids Consumption

EIA estimates that global consumption of petroleum and other liquids grew by 1.2 million b/d in 2014, averaging 92.4 million b/d for the year. EIA expects global consumption of petroleum and other liquids to grow by 1.2 million b/d in 2015 and by 1.3 million b/d in 2016. Growth in global consumption for 2016 was revised downward by almost 0.2 million b/d, compared with last month's forecast, as China and other Asian economies continue to show signs of weakness. World real gross domestic product (GDP) weighted for oil consumption increased by 2.8% in 2014, and is projected to grow by 2.3% in 2015 and by 2.9% in 2016.

Consumption of petroleum and other liquids in countries outside of the Organization for Economic Cooperation and Development (OECD) grew by 1.4 million b/d in 2014 and is projected to grow by 0.7 million b/d in 2015 and by 1.1 million b/d in 2016. Despite signs of slowing economic growth, China continues to be a driver of non-OECD oil consumption growth. China's growth in oil consumption is expected to average slightly less than 0.3 million b/d in 2015 and 2016, below the 0.4 million b/d growth in 2014. Also, Iran is expected to experience an uptick in economic activity and petroleum consumption in 2016, assuming implementation of the Joint Comprehensive Plan of Action (JCPOA) between Iran and the P5+1 that was announced on July 14.

After falling by 0.3 million b/d in 2014, OECD petroleum and other liquids consumption is expected to rise by 0.4 million b/d in 2015 and by 0.3 million b/d in 2016, reaching an average of 46.4 million b/d, the highest annual average level of OECD consumption since 2010. U.S. consumption is expected to grow by an average of 0.3 million b/d in 2015 and by 0.1 million b/d in 2016. Several European countries saw economic conditions improve as they emerged from recessions, which, combined with colder-than-normal weather early in 2015 across Europe, contributes to a projected 0.1 million b/d increase in consumption in OECD Europe in 2015.

Figure 6: World Liquid Fuels Consumption Growth

Non-OPEC Petroleum and Other Liquids Supply

EIA estimates that petroleum and other liquids production in countries outside of the Organization of the Petroleum Exporting Countries (OPEC) grew by 2.4 million b/d in 2014, which mainly reflects production growth in the United States. EIA expects non-OPEC liquids production to grow by 1.4 million b/d in 2015, but to remain roughly flat in 2016, as declining U.S. production is offset by modest growth in other non-OPEC producers.

Non-OPEC production growth in 2015 is largely attributable to investments made when oil prices were higher. For example, the decisions to invest in the Golden Eagle, Peregrine, and Kinnoull fields in the United Kingdom's sector of the North Sea were made in the second half of 2011 when Brent crude prices were more than $100/b. The three fields started producing at the end of 2014 and the beginning of 2015. Redirection of investment is also helping to maintain or raise production levels in non-OPEC countries. Some companies have cut back on investments in exploring for new fields, and some are directing a greater share of investments toward currently producing fields to maintain production levels and positive cash flow in the short term. However, this redirection of investment could contribute to lower production beyond the forecast period.

Production growth in Canada is expected to average 0.3 million b/d in both 2015 and 2016, driven by continued expansion in oil sands projects. Although some previously announced oil sands projects have been put on hold, the vast majority continue as planned, including Imperial Oil and Cenovus oil sands projects scheduled to come online by the end of 2016.

Unplanned supply disruptions among non-OPEC producers averaged 0.7 million b/d in August, slightly less than in the previous month.

OPEC Petroleum and Other Liquids Supply

EIA estimates that OPEC crude oil production averaged 30.1 million b/d in 2014, unchanged from 2013. Crude oil production declines in Libya, Angola, Algeria, and Kuwait offset production growth in Iraq and Iran. EIA forecasts OPEC crude oil production to increase by 0.8 million b/d in 2015 and remain relatively flat in 2016. Iraq is expected to be the largest contributor to OPEC production growth in 2015. In 2016, additional OPEC crude oil supply is expected to come from Iran, which is forecast to boost production if international sanctions targeting its oil sector are suspended.

On July 14, the P5+1 and Iran announced an agreement that could result in relief from United States and European Union nuclear-related sanctions (which include some oil-related sanctions). Sanctions relief is contingent on verification by the International Atomic Energy Agency that Iran has complied with key nuclear-related steps. The sanctions relief would put additional Iranian oil supplies on a global market that has already seen oil inventories increase significantly over the past year.

The JCPOA is currently undergoing a congressional review. As of the time of this writing, Congress had not voted on the agreement, but for the purposes of this STEO, EIA assumes sanctions relief could occur in mid-2016. If sanctions relief occurs, EIA forecasts Iranian crude oil supplies will increase by about 0.3 million b/d on average in 2016, with most of the growth occurring in the second half of the year. Much uncertainty remains as to the timing of sanctions relief. Iran produced 3.6 million b/d of crude oil in late 2011, before the recent round of sanctions was enacted. The sanctions forced Iran to shut in a substantial portion of its production, with production currently averaging about 2.8 million b/d. Iran's ability to bring online previously shut-in volumes and increase exports depends on several factors, including the current condition of oil fields and infrastructure that were shut in and the pace of sanctions relief.

Saudi Arabia and other OPEC member countries are not expected to reduce production to accommodate additional Iranian volumes, although some producers will see production declines in the near term. For example, Saudi Arabia's production is expected to decline as seasonal power demand abates, reducing the use of crude oil to generate electricity. Also, there is considerable uncertainty regarding Iraq's ability to sustain its higher production and export levels, particularly in light of increased outages on the pipeline through Turkey to the port of Ceyhan that is connected to the Kurdistan Regional Government's independent pipeline.

OPEC noncrude liquids production, which averaged 6.3 million b/d in 2014, is expected to increase by 0.2 million b/d in 2015 and by 0.3 million b/d in 2016, led by production increases in Iran, Qatar, and Kuwait.

In August, unplanned crude oil supply disruptions among OPEC producers averaged 2.8 million b/d, nearly the same level as in the previous month. Kuwait and Saudi Arabia continue to have a total of 0.5 million b/d disrupted at the Wafra and Khafji fields in the Neutral Zone that straddles the two countries.

EIA expects OPEC surplus crude oil production capacity, which is concentrated in Saudi Arabia, to average 1.5 million b/d in 2015 and then increase to 2.0 million b/d in 2016, after averaging 2.0 million b/d in 2014. Surplus capacity is typically an indicator of market conditions, and surplus capacity lower than 2.5 million b/d indicates a relatively tight oil market, but the current and forecast levels of global inventory builds make the projected low surplus capacity level in 2015 less significant. EIA does not expect any Iranian spare capacity to be available throughout the forecast period despite increases in effective capacity, as Iran is expected to produce crude oil at the maximum available level through the end of 2016 if and when sanctions are lifted.

OECD Petroleum Inventories

EIA estimates that OECD commercial crude oil and other liquids inventories totaled 2.70 billion barrels at the end of 2014, equivalent to roughly 59 days of consumption. Forecast OECD inventories rise to 2.99 billion barrels at the end of 2015 and then to 3.11 billion barrels at the end of 2016.

Crude Oil Prices

Brent crude oil spot prices decreased by $10/b in August to a monthly average of $47/b, driven by continued growth in global liquids inventories and expectations of weakening global economic activity. Along with increasing volatility in global equity prices and exchange rates, crude oil price volatility increased significantly in August, reflecting uncertainty about potential lower economic and oil demand growth in emerging market countries. Volatility remained heightened at the end of August and into September, with Brent spot prices increasing from $42/b on August 26 to $52/b on August 31, before falling below $50/b again on September 1. During this period, Brent prices showed daily changes of more than 5% for four consecutive trading days, the longest stretch of such high volatility since December 2008.

Continuing increases in global liquids inventories have put significant downward pressure on prices. Inventories rose by an estimated 2.4 million b/d through the first eight months of 2015, compared with an average build of 0.6 million b/d over the same period in 2014. Inventory builds are projected to moderate somewhat in the coming months, but are expected to remain high compared with previous years.

The monthly average WTI crude oil spot price fell to an average of $43/b in August, down $8/b from July. Crude oil inventories at Cushing, Oklahoma, despite being 4.9 million barrels lower than the record high of 62.2 million barrels on April 17, remain about 37 million barrels higher than at the same time last year. U.S. crude oil inventories remain elevated compared with historical levels, despite strong U.S. refinery runs , which in recent weeks reached record highs over 17 million b/d.

EIA projects the Brent crude oil price will average $54/b in 2015 and $59/b in 2016, unchanged from August's STEO. WTI prices in both 2015 and 2016 are expected to average $5/b less than the Brent crude oil price. EIA's updated projection remains subject to significant uncertainties as the oil market moves toward balance. During this period of price discovery, oil prices could continue to experience periods of heightened volatility. The oil market faces many uncertainties heading into 2016, including the pace and volume at which Iranian oil reenters the market, the strength of oil consumption growth, and the responsiveness of non-OPEC production to low oil prices. In the more immediate future, there is potential downward price pressure heading into the fourth quarter of 2015 if refinery runs drop by more than expected during the fall maintenance season.

The current values of futures and options contracts continue to suggest high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for December 2015 delivery, traded during the five-day period ending September 3, averaged $48/b, while implied volatility averaged 47%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in December 2015 at $32/b and $73/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $26/b and $108/b for prices in December 2016. Last year at this time, WTI for December 2014 delivery averaged $93/b, and implied volatility averaged 16%. The corresponding lower and upper limits of the 95% confidence interval were $81/b and $107/b.

Global Petroleum and Other Liquids
  2013 2014 2015 2016
a Weighted by oil consumption.
b Foreign currency per U.S. dollar.
Supply & Consumption (million barrels per day)
Non-OPEC Production 54.63 57.02 58.41 58.42
OPEC Production 36.42 36.35 37.29 37.61
OPEC Crude Oil Portion 30.12 30.08 30.84 30.86
Total World Production 91.05 93.36 95.70 96.03
OECD Commercial Inventory (end-of-year) 2550 2698 2989 3114
Total OPEC surplus crude oil production capacity 2.13 2.02 1.51 2.03
OECD Consumption 46.03 45.75 46.19 46.44
Non-OECD Consumption 45.25 46.69 47.43 48.49
Total World Consumption 91.28 92.45 93.62 94.93
Primary Assumptions (percent change from prior year)
World Real Gross Domestic Producta 2.8 2.8 2.3 2.9
Real U.S. Dollar Exchange Rateb 3.8 3.6 10.6 2.3

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