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Short-Term Energy Outlook

Release Date: May 12, 2015  |  Next Release Date: June 9, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Global Petroleum and Other Liquids

As in last month's STEO, global liquids production continues to exceed demand, resulting in inventory builds. Global oil inventory builds are projected to average 1.8 million b/d through the first half of 2015. Inventory builds moderate to 0.9 million b/d during the second half of the year, as demand rises and non-Organization of the Petroleum Exporting Countries (OPEC) supply growth slows, particularly in the United States. The expected inventory builds in 2015 are on top of an estimated average 1.1 million b/d increase in 2014.

Global Petroleum and Other Liquids Consumption

EIA estimates that global consumption of petroleum and other liquids grew by 0.9 million b/d in 2014, averaging 92.0 million b/d for the year. EIA expects global consumption will grow by 1.2 million b/d in 2015 and by 1.3 million b/d in 2016. Forecast global consumption growth was revised upward from last month's STEO by an average of 0.2 million b/d in both 2015 and 2016, as lower oil prices stimulate demand growth more than previously expected. Projected global oil-consumption-weighted real gross domestic product (GDP), which increased by an estimated 2.7% in 2014, is projected to grow by 2.5% in 2015 and by 3.0% in 2016.

Consumption outside of the Organization for Economic Cooperation and Development (OECD) countries, which grew by 1.2 million b/d in 2014, is projected to grow by 0.9 million b/d in 2015 and by 1.2 million b/d in 2016. Lower forecast non-OECD consumption growth in 2015 mostly reflects a 0.2 million b/d decline in Russia's consumption as a result of its economic downturn. Russia's oil consumption is expected to decline by a similar amount in 2016, although it is offset by growth elsewhere. China's economic growth slowed in the second half of 2014 and in the beginning of 2015. Nonetheless, China remains the main source of non-OECD oil consumption growth, with a projected annual average increase of 0.3 million b/d in both 2015 and 2016, down from growth of 0.4 million b/d in 2014.

OECD petroleum and other liquids consumption, which fell by 0.4 million b/d in 2014, is expected to grow by 0.3 million b/d in 2015 and by 0.1 million b/d in 2016. Japan and Europe accounted for nearly all of the 2014 decline in OECD oil consumption. Japan's consumption is expected to continue declining over the next two years, albeit at a slower rate than in 2014, while Europe's consumption is expected to stay relatively flat. The United States is the leading contributor to projected OECD consumption growth, with U.S. consumption increasing by 0.3 million b/d in 2015 and by 0.1 million b/d in 2016.

Figure 6: World Liquid Fuels Consumption Growth

Non-OPEC Petroleum and Other Liquids Supply

EIA estimates that non-OPEC production grew by 2.2 million b/d in 2014. EIA expects non-OPEC production to grow by 0.8 million b/d in 2015 and by 0.4 million b/d in 2016. The slower growth in total non-OPEC supply is largely attributable to slower production growth in the United States and Canada in response to lower projected oil prices, as well as declining production in Europe and Eurasia. After remaining relatively flat in 2015, production in Eurasia is projected to decline by more than 0.1 million b/d in 2016. The projected decline reflects reduced investment in Russia's oil sector stemming from low oil prices and international sanctions.

Unplanned supply disruptions among non-OPEC producers averaged about 0.7 million b/d in April 2015, almost 0.1 million b/d higher than the previous month because of more outages in Yemen and a new outage in Gabon. Yemen's production, which averaged 130,000 b/d in 2014, was halved when operations at an oil port and refinery were halted following the recent escalation in violence. In Gabon, a labor strike at oil fields resulted in a small supply disruption in April. South Sudan, Syria, and Yemen accounted for 90% of total non-OPEC supply disruptions in April. EIA estimates unplanned non-OPEC supply disruptions averaged 0.6 million b/d in 2014.

OPEC Petroleum and Other Liquids Supply

EIA estimates OPEC crude oil production averaged 30.1 million b/d in 2014, unchanged from the previous year. Crude oil production declines in Libya, Angola, Algeria, and Kuwait offset production growth in Iraq and Iran. In EIA's forecast, OPEC crude oil production rises by 0.4 million b/d in 2015 and falls by 0.2 million b/d in 2016. Forecast OPEC crude oil production was revised upward from last month's STEO by 0.3 million b/d in 2015 and by 0.2 million b/d in 2016. Iraq is expected to be the largest contributor to OPEC production growth over the next two years.

On April 2, Iran and the five permanent members of the United Nations Security Council plus Germany (P5+1) reached a framework agreement to guide negotiations targeting a comprehensive agreement by June 30. A comprehensive agreement could result in the lifting of oil-related sanctions against Iran and a subsequent increase in Iran's crude oil production and exports, although the potential timing and details of any suspension of sanctions are uncertain. EIA has not changed its short-term projection for Iranian crude oil production, which assumes that production will stay close to the current level.

Iran produced 3.6 million b/d of crude oil in late 2011, before the recent round of sanctions was enacted, forcing Iran to shut in a substantial portion of its production. Iran's ability to bring back 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, the pace of sanctions relief, and the ability of Iran to find buyers in the present market. If a comprehensive agreement is reached, EIA estimates that the re-entry of more Iranian barrels could result in a $5/b-$15/b lower baseline STEO price forecast for 2016 (see the analysis box on page 5 of the April 2015 STEO for further discussion).

OPEC noncrude liquids production, which averaged 6.3 million b/d in 2014, is expected to increase by 0.3 million b/d in 2015 and by 0.1 million b/d in 2016, led by production increases in Qatar, Iran, and Kuwait.

In April, unplanned crude oil supply disruptions among OPEC producers averaged 2.3 million b/d, almost 0.1 million b/d lower compared with the previous month. Unplanned OPEC crude supply disruptions averaged 2.4 million b/d in 2014, 0.5 million b/d higher than in the previous year.

EIA expects OPEC surplus crude oil production capacity, which is concentrated in Saudi Arabia, to decrease to an average of 1.8 million b/d in 2015 and increase to 2.1 million b/d in 2016, after averaging 2.0 million b/d in 2014. Surplus capacity is typically an indication of market conditions, and surplus capacity below 2.5 million b/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. Nonetheless, low surplus capacity heightens uncertainty about the market's ability to counteract unforeseen supply outages, particularly in the current geopolitical climate with ongoing conflicts in or next to major oil producing countries in the Middle East and North Africa. These factors may be applying upward pressure on crude oil prices that could continue through the forecast.

OECD Petroleum Inventories

EIA estimates that OECD commercial oil inventories totaled 2.72 billion barrels at the end of 2014, the highest end-of-year level on record and equivalent to roughly 59 days of consumption. Projected OECD oil inventories rise to 2.91 billion barrels at the end of 2015 and then rise slightly to 2.93 billion barrels at the end of 2016.

Crude Oil Prices

North Sea Brent crude oil spot prices increased by $4/b in April to a monthly average of $60/b, which was the highest monthly average for Brent so far this year. Several factors put upward pressure on crude oil prices in April. These factors included indications that global oil demand growth is accelerating, evidence that U.S. tight oil production could decline in the coming months, and the growing risk of unplanned supply outages in the Middle East and North Africa. As of May 1, the number of rigs drilling for crude oil had fallen for 21 consecutive weeks and was more than 50% below its peak in October 2014. Brent crude oil prices increased despite growing global oil inventories, which built by more than 2 million b/d for the second consecutive month in April, compared with an average build of 0.8 million b/d in March and April of last year. Inventory builds are projected to moderate in the coming months.

The monthly average WTI crude oil spot price increased to an average of $54/b in April, up $7/b from March. While crude oil inventories at Cushing, Oklahoma increased in April, they fell by 0.5 million barrels during the week ending April 24, the first decline in 21 weeks, and were unchanged for the week ending May 1. Moderating Cushing inventory builds, along with expected declines in U.S. tight oil production and increasing U.S. refinery runs, have put upward pressure on the price of WTI crude oil.

EIA projects the Brent crude oil price will average $61/b in 2015, $1/b higher that in last month's STEO, with prices rising from an average of $54/b in the first quarter to an average of $63/b for the remainder of the year. The Brent crude oil price is projected to average $70/b in 2016, $5/b lower than in last month's STEO, reflecting an increase in forecast OPEC crude oil production in 2016. However, this price projection remains subject to the uncertainties surrounding the possible lifting of sanctions against Iran and other market events. WTI prices in 2015 and 2016 are expected to average $6/b and $5/b, respectively, below Brent.

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 August 2015 delivery traded during the five-day period ending May 7 averaged $61/b while implied volatility averaged 33%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in August 2015 at $46/b and $81/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $41/b and $97/b for prices in December 2015. Last year at this time, WTI for August 2014 delivery averaged $99/b, and implied volatility averaged 17%. The corresponding lower and upper limits of the 95% confidence interval were $85/b and $115/b.

Given the high level of uncertainty in oil markets, several factors could cause oil prices to deviate significantly from current projections. Among these factors is the potential lifting of sanctions against Iran if a comprehensive agreement is reached. The level of unplanned production outages could also vary from forecast levels for a wide range of producers, including OPEC members Libya, Iraq, 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 revenue to finance their national budgets. The decline in oil prices since mid-2014 has led some governments to curb spending, potentially leading 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 always 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 54.51 56.73 57.56 57.91
OPEC Production 36.45 36.37 37.04 36.92
OPEC Crude Oil Portion 30.12 30.08 30.47 30.22
Total World Production 90.95 93.10 94.59 94.83
OECD Commercial Inventory (end-of-year) 2550 2716 2914 2925
Total OPEC surplus crude oil production capacity 2.13 2.03 1.76 2.13
OECD Consumption 46.03 45.66 45.97 46.09
Non-OECD Consumption 45.16 46.38 47.31 48.49
Total World Consumption 91.19 92.05 93.28 94.58
Primary Assumptions (percent change from prior year)
World Real Gross Domestic Producta 2.7 2.7 2.5 3.0
Real U.S. Dollar Exchange Rateb 3.8 3.7 10.6 1.0

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