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Short-Term Energy and Summer Fuels Outlook

Release Date: April 12, 2016  |  Next Release Date: May 10, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Global Petroleum and Other Liquids

Global oil inventory builds in 2015 averaged 2.1 million b/d. The pace of inventory builds is expected to slow to an average of 1.4 million b/d in 2016 and to 0.4 million b/d in 2017.

Global Petroleum and Other Liquids Consumption

EIA estimates that global consumption of petroleum and other liquid fuels grew by 1.3 million b/d in 2015, averaging 93.7 million b/d. EIA expects global consumption of petroleum and other liquid fuels to grow by 1.2 million b/d in 2016 and by 1.3 million b/d in 2017. Real gross domestic product (GDP) for the world (weighted by oil consumption), which increased by 2.4% in 2015, is expected to rise by 2.3% in 2016 and by 3.0% in 2017.

Consumption of petroleum and other liquid fuels in countries outside of the Organization for Economic Cooperation and Development (OECD) increased by an estimated 0.7 million b/d in 2015. Non-OECD consumption growth is expected to be 1.0 million b/d in 2016 and 1.2 million b/d in 2017, reflecting higher growth in the Middle East and in Eurasia. Slowing economic growth in China poses a downside risk to the forecast for liquid fuels consumption.

OECD petroleum and other liquid fuels consumption rose by 0.6 million b/d in 2015. OECD consumption is expected to increase by 0.2 million b/d in 2016 and by 0.1 million b/d in 2017, led by increases in U.S. consumption. Forecast U.S. consumption increases by 0.1 million b/d in 2016 and by 0.2 million b/d in 2017. OECD Europe demand is forecast to decline slightly in 2016 and 2017. Consumption in Japan is forecast to decline by 0.1 million b/d in both 2016 and 2017.

Figure 6: World Liquid Fuels Consumption Growth

Non-OPEC Petroleum and Other Liquids Supply

EIA estimates that petroleum and other liquid fuels production in countries outside of the Organization of the Petroleum Exporting Countries (OPEC) grew by 1.5 million b/d in 2015, with most of the growth occurring in North America. EIA expects non-OPEC production to decline by 0.4 million b/d in 2016, which would be the first decline since 2008. Most of the forecast production decline in 2016 is expected to be in the United States. Non-OPEC production is forecast to decline by 0.5 million b/d in 2017.

Changes in non-OPEC production are driven by changes in U.S. tight oil production, which is characterized by high decline rates and relatively short investment horizons, making it among the most price-sensitive production globally. However, increases in hydrocarbon gas liquids (HGL) production from natural gas plants and in crude oil production from the Gulf of Mexico will partially offset lower tight oil production. Forecast total U.S. liquid fuels production declines by 0.6 million b/d in 2016 and by 0.3 million b/d in 2017, which are both lower than the decline in crude oil considered separately. Outside of the United States, forecast non-OPEC production increases by 0.2 million b/d in 2016 and then decreases by 0.2 million b/d in 2017.

Petroleum and other liquids production is relatively robust through the forecast period because of investments committed to projects when oil prices were higher. Although oil companies have reduced investments, most of the cuts have been in capital budgets that largely affect production levels beyond 2017.

Among non-OPEC producers outside of the United States, the largest declines are forecast to be in the North Sea. After increasing in 2014 and 2015, production in the North Sea is expected to return to its long-term declining trend in 2016 and 2017, as the planned start of several projects is not enough to offset the region's steep natural decline rates.

Some non-OPEC producers, led by Canada, are expected to see continuing growth in oil production through the forecast period. Production in Canada is forecast to increase by 0.2 million b/d in both 2016 and 2017. Several oil sands projects in Canada are expected to begin production, including the Imperial Oil project and the Cenovus project, both scheduled to come online by the end of 2016. Producers commissioned these projects before crude oil prices began declining in 2014.

Non-OPEC unplanned supply disruptions in March 2016 were about 0.4 million b/d. A fire at one of Brazi's offshore platforms in mid-March shut in about 50,000 b/d of production. In Ghana, unplanned and planned maintenance work at the Jubilee field's offshore floating production, storage, and offloading (FPSO) vessel forced loadings to be suspended and reduced production in March. Unplanned production volumes disrupted were about 25,000 b/d in March, although the total amount offline because of scheduled maintenance was higher.

OPEC Petroleum and Other Liquids Supply

OPEC crude oil production averaged 31.6 million b/d in 2015, an increase of 0.8 million b/d from 2014, led by rising production in Iraq and Saudi Arabia. Forecast OPEC crude oil production increases by 0.6 million b/d in 2016 and by 0.5 million b/d in 2017, with Iran accounting for most of the increase. The forecast does not assume a collaborative production cut among OPEC members and other major producers in the forecast period, as major OPEC producers continue their strategy of maintaining market share.

OPEC noncrude liquids production averaged 6.6 million b/d in 2015, and it is forecast to increase by 0.3 million b/d in both 2016 and 2017, led by increases in Iran and Qatar.

OPEC unplanned crude oil supply disruptions averaged 2.3 million b/d in March, 0.1 million b/d higher compared with February. In March, disrupted volumes increased slightly in Nigeria because of pipeline sabotage, and in Libya, where power shortages caused production disruptions at several fields. In Iraq, disrupted volumes remained high, but were largely unchanged from the February level. The pipeline carrying oil produced in northern Iraq to the Turkish port of Ceyhan was offline for almost a month starting in mid-February because of sabotage. The pipeline has resumed operation, but production from northern fields operated by Iraq's National Oil Company remains disrupted because of a political dispute between the central government in Baghdad and the Kurdistan Regional Government.

OPEC surplus crude oil production capacity, which averaged 1.6 million b/d in 2015, is expected to be 1.8 million b/d in 2016 and 1.6 million b/d in 2017. Surplus capacity is typically an indicator of market conditions, and surplus capacity below 2.5 million b/d indicates a relatively tight oil market. However, the continuing inventory builds and high current and forecast levels of global oil inventories make the projected low surplus capacity level less significant.

OECD Petroleum Inventories

EIA estimates that OECD commercial crude oil and other liquid fuels inventories totaled 3.05 billion barrels at the end of 2015, equivalent to roughly 66 days of consumption. Forecast OECD inventories rise to 3.22 billion barrels at the end of 2016, and they are expected to be 3.25 billion barrels at the end of 2017.

Crude Oil Prices

Brent crude oil spot prices increased by $6/b in March to a monthly average of $38/b. Declines in the U.S. rig count and some improvement in global economic indicators contributed to higher oil prices in March. However, market expectations of ongoing growth in global oil inventories contributed to falling prices at the end of March, with Brent prices ending the month below $37/b.

With global oil inventory builds expected to average 1.4 million b/d in 2016, oil prices are forecast to remain near current levels. Forecast Brent prices average $35/b in 2016.

Global oil inventories are expected to grow by 0.4 million b/d in 2017. Lower forecast inventory builds contribute to a moderate price recovery in 2017, with Brent prices forecast to average $41/b. Forecast Brent prices reach an average of $46/b in the fourth quarter of 2017, as the global oil market is expected be relatively balanced late in 2017, with the potential for significant inventory draws beyond the forecast period.

Forecast West Texas Intermediate (WTI) crude oil prices average the same as Brent crude oil prices through the forecast period. The 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, as transportation differentials are similar to move the crudes from their respective pricing points to that market.

The expectation of continuing large inventory builds is a major source of uncertainty in the price forecast, as the capacity of global oil storage to absorb such builds is unknown. If global storage capacity becomes stressed, the cost of storage will rise to reflect more expensive marginal storage options such as floating inventories on crude oil tankers. The higher storage costs would lower near-month crude oil prices. Additional uncertainty stems from the pace of global economic growth and its contribution to oil demand growth and from the responsiveness of oil producers to sustained low oil prices.

The current values of futures and options contracts highlight the heightened volatility and high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for July 2016 delivery that were traded during the five-day period ending April 7 averaged $39/b, and implied volatility averaged 44%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in July 2016 at $27/b and $57/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $22/b and $78/b for prices in December 2016. At this time last year, WTI for July 2015 delivery averaged $52/b, and implied volatility averaged 46%, with the corresponding lower and upper limits of the 95% confidence interval at $35/b and $78/b.

Global Petroleum and Other Liquids
  2014 2015 2016 2017
a Weighted by oil consumption.
b Foreign currency per U.S. dollar.
Supply & Consumption (million barrels per day)
Non-OPEC Production 56.06 57.57 57.16 56.68
OPEC Production 37.24 38.18 39.10 39.93
OPEC Crude Oil Portion 30.77 31.60 32.21 32.71
Total World Production 93.30 95.76 96.27 96.61
OECD Commercial Inventory (end-of-year) 2721 3047 3222 3253
Total OPEC surplus crude oil production capacity 2.07 1.62 1.76 1.57
OECD Consumption 45.73 46.33 46.49 46.62
Non-OECD Consumption 46.64 47.37 48.37 49.56
Total World Consumption 92.37 93.70 94.86 96.19
Primary Assumptions (percent change from prior year)
World Real Gross Domestic Producta 2.8 2.4 2.3 3.0
Real U.S. Dollar Exchange Rateb 3.6 10.9 7.6 -0.5

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