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Short-Term Energy Outlook

Release Date: February 10, 2015  |  Next Release Date: March 10, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Global Petroleum and Other Liquids

Market fundamentals remain largely unchanged since last month's forecast, as global production continues to be higher than demand, contributing to inventory builds. Global oil inventory builds averaging 0.9 million bbl/d are projected through the first half of 2015, with the builds moderating during the second half of the year, as non-OPEC supply growth, particularly from the United States, weakens because of lower oil prices. The expected inventory builds in 2015 are on top of an estimated 0.8 million bbl/d increase in 2014.

EIA revised historical global supply and demand levels to reflect improved data estimates for various countries. These changes to history affected forecast levels of supply and demand, but did not affect forecast growth rates.

Global Petroleum and Other Liquids Consumption

EIA estimates that global consumption grew by 0.9 million bbl/d in 2014, averaging 92.1 million bbl/d for the year. EIA expects global consumption to grow by 1.0 million bbl/d in both 2015 and 2016. Projected global oil-consumption-weighted real gross domestic product (GDP), which increased by an estimated 2.7% in 2014, is projected to grow by 2.8% in 2015 and by 3.2% in 2016.

Non-OECD consumption growth is the main driver of global consumption growth in the forecast, with projected growth of 0.8 million bbl/d in 2015 and of 1.1 million bbl/d in 2016, both lower than the estimated 1.2 million bbl/d of growth in 2014. China's consumption is projected to increase by an annual average of 0.3 million bbl/d in both 2015 and 2016, below the 0.4 million bbl/d of growth in 2014. China's economic growth slowed in the latter half of 2014, as key manufacturing indexes decreased. Nonetheless, China remains the main source of non-OECD consumption growth. Projected declines in Russia's oil consumption because of its economic downturn also contribute to lower non-OECD consumption growth over the forecast period compared with 2014. Russia's consumption is expected to decline by 0.2 million bbl/d in both 2015 and 2016.

OECD consumption, which fell by 0.3 million bbl/d in 2014, is expected to grow by 0.2 million bbl/d in 2015 and then decline by 0.1 million bbl/d in 2016. Japan and Europe accounted for almost the entire decline in 2014 and are expected to continue to decline over the next two years, albeit at a lesser rate than in 2014. The United States is the leading contributor to projected OECD consumption growth, with U.S. consumption increasing by 0.3 million bbl/d in 2015 and by 0.1 million bbl/d in 2016.

Figure 6: World Liquid Fuels Consumption Growth

Non-OPEC Petroleum and Other Liquids Supply

After increasing by 2.1 million bbl/d in 2014, non-OPEC supply is expected to grow more slowly, by 0.8 million bbl/d annually in both 2015 and 2016, in part because of lower projected oil prices. The slower growth in non-OPEC supply over the forecast period is largely attributable to slower production growth in the United States, Canada, and South America. Additionally, oil production in Europe and Eurasia is projected to decline. The United States remains the leading contributor to non-OPEC supply in the forecast.

Unplanned supply disruptions among non-OPEC producers averaged slightly more than 0.6 million bbl/d in 2014, 0.2 million bbl/d less than in 2013. In January 2015, non-OPEC supply disruptions were 0.6 million bbl/d, similar to the previous month. South Sudan, Syria, and Yemen accounted for more than 85% of total non-OPEC supply disruptions.

OPEC Petroleum and Other Liquids Supply

EIA estimates that OPEC crude oil production averaged 30.1 million bbl/d in 2014, unchanged from the previous year. Crude oil production declines in Libya, Angola, Algeria, and Kuwait more than offset production growth in Iraq and Iran. EIA expects OPEC crude oil production to fall by 0.1 million bbl/d in 2015, and to fall by 0.4 million bbl/d in 2016. Iraq is the largest contributor to OPEC production growth over the forecast period, but its growth is expected to be offset by production declines from other Persian Gulf producers. However, the threat of the Islamic State of Iraq and the Levant (ISIL) on northern Iraqi production and exports still looms, and as a result, Iraq is a major wild card in the world oil production forecast.

EIA estimates that OPEC produced 6.4 million bbl/d of noncrude oil liquids in 2014, slightly less than its production in 2013. OPEC noncrude liquids production is expected to increase by less than 0.1 million bbl/d in both 2015 and 2016, led by Iran and Qatar. In January 2015, unplanned crude oil supply disruptions among OPEC producers averaged 2.6 million bbl/d, an increase of less than 0.1 million bbl/d compared with the previous month. This increase was attributable to rising outages in Libya, which have been growing since late 2014. Unplanned OPEC crude supply disruptions averaged 2.4 million bbl/d in 2014, 0.6 million bbl/d higher than in the previous year. Libya and Iraq accounted for almost all of the growth in OPEC disruptions. The high level of OPEC disruptions contributed to higher crude oil prices during the first half of 2014. However, with continuous growth in non-OPEC production and strong production in Saudi Arabia outpacing world oil demand growth, the current volume of supply disruptions has become less significant. Unplanned supply disruptions could still affect crude oil prices, but the threshold that the market can bear has risen in light of robust global production.

EIA expects OPEC surplus crude oil production capacity, which is concentrated in Saudi Arabia, to increase to an annual average of 2.3 million bbl/d in 2015 and 2.7 million bbl/d in 2016, after averaging about 2.0 million bbl/d in 2014. Surplus capacity is typically an indication of market conditions, and surplus capacity below 2.5 million bbl/d is an indicator of a relatively tight market. However, the current and forecast levels of global inventory builds make the projected low surplus capacity level in 2015 less significant.

OECD Commercial Petroleum Inventories

EIA estimates that OECD commercial oil inventories totaled 2.74 billion barrels at the end of 2014, the highest end-of-year level on record and equivalent to roughly 58 days of consumption. Projected OECD oil inventories rise to 2.83 billion barrels at the end of 2015 and again total 2.83 billion barrels at the end of 2016.

Crude Oil Prices

North Sea Brent crude oil spot prices averaged $48/bbl in January, the lowest monthly average Brent price since March 2009, down $15/bbl from the December average. The combination of robust world crude oil supply growth and weak global demand has contributed to rising global inventories and falling crude oil prices (EIA, This Week in Petroleum, January 28, 2015).

EIA expects global oil inventories to continue to build in 2015, limiting upward pressure on oil prices because of declining drilling activity. The forecast Brent crude oil price averages $58/bbl in 2015, unchanged from last month's STEO. Based on current market balances, EIA expects prices to be relatively flat in the first half of 2015, when global inventory builds are projected to be significant. EIA projects that Brent prices will average $67/bbl during the fourth quarter.

The monthly average WTI crude oil spot price fell from an average of $59/bbl in December to $47/bbl in January, its lowest level since February 2009. EIA expects the WTI crude oil price to average $55/bbl in 2015 and $71/bbl in 2016, both unchanged from last month's STEO. The discount of WTI to Brent crude oil averaged less than $1/bbl in January, the narrowest monthly average price spread since August 2010. In the forecast, the discount of WTI to Brent is projected to average $3/bbl in 2015 and $4/bbl in 2016.

The current values of futures and options contracts suggest continuing high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for May 2015 delivery, traded during the five-day period ending February 5, averaged $52/bbl. Implied volatility averaged 52%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in May 2015 at $33/bbl and $81/bbl, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $32/bbl and $108/bbl for prices in December 2015. Last year at this time, WTI for May 2014 delivery averaged $96/bbl, and implied volatility averaged 19%. The corresponding lower and upper limits of the 95% confidence interval were $81/bbl and $113/bbl.

The recent declines in oil prices and associated increase in oil price volatility continue to contribute to a particularly uncertain forecasting environment, and several factors could cause oil prices to deviate significantly from current projections. Among these factors is the responsiveness of supply to lower prices. Despite OPEC's November 2014 decision to leave its crude oil production target at 30 million bbl/d, key producers could decide to reduce output, tightening market balances. The level of unplanned production outages could also vary from forecast levels for a wide range of producers, including OPEC members Libya, Iraq, Iran, Nigeria, and Venezuela. The degree to which non-OPEC supply growth is affected by lower oil prices will also affect market balances and prices.

Several OPEC and non-OPEC oil producers rely heavily on oil revenues to finance national budgets. Some producers have already started adjusting their upcoming budgets to reflect the crude oil price decline. If crude oil prices fall further or are sustained at current levels, then oil-dependent producers will face tough decisions. These decisions could potentially lead to austerity programs and fuel subsidy cuts that could spark social unrest, leaving some countries vulnerable to supply disruptions if protesters target oil infrastructure. Potential new supply disruptions are a real possibility and present a major uncertainty in the world oil supply forecast.

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 54.36 56.45 57.27 58.05
OPEC Production 36.54 36.49 36.49 36.18
OPEC Crude Oil Portion 30.12 30.10 30.05 29.70
Total World Production 90.90 92.94 93.76 94.24
OECD Commercial Inventory (end-of-year) 2550 2741 2827 2832
Total OPEC surplus crude oil production capacity 2.13 2.04 2.26 2.73
OECD Consumption 46.07 45.75 45.96 45.87
Non-OECD Consumption 45.17 46.38 47.19 48.28
Total World Consumption 91.24 92.13 93.14 94.15
Primary Assumptions (percent change from prior year)
World Real Gross Domestic Producta 2.7 2.7 2.8 3.2
Real U.S. Dollar Exchange Rateb 3.8 3.6 8.3 0.3

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