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Short-Term Energy Outlook

Release Date: July 7, 2015  |  Next Release Date: August 11, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Global Petroleum and Other Liquids

Global liquids production continues to exceed consumption, resulting in inventory builds. Global oil inventory builds are estimated to have averaged 2.2 million b/d through the first half of 2015 and are projected to average 1.5 million b/d during the second half of the year. The slowing increases in inventory reflect rising demand and slowing production growth outside of the Organization of the Petroleum Exporting Countries (OPEC), particularly in the United States. The expected inventory builds in 2015 are on top of an estimated 0.9 million b/d increase in 2014. By 2016, inventory builds are expected to moderate to 0.6 million b/d.

Global Petroleum and Other Liquids Consumption

EIA estimates global consumption of petroleum and other liquids grew by 1.1 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 1.3 million b/d in 2015 and by 1.4 million b/d in 2016. Projected real gross domestic product (GDP) weighted for oil consumption, which increased by an estimated 2.8% in 2014, is projected to grow by 2.5% in 2015 and by 3.1% in 2016.

Consumption of petroleum and other liquids outside Organization for Economic Cooperation and Development (OECD) countries grew by 1.4 million b/d in 2014 and is projected to grow by 0.8 million b/d in 2015 and by 1.1 million b/d in 2016. Lower forecast growth for non-OECD consumption in 2015 mostly reflects a 0.2 million b/d decline in Russia's consumption as a result of the country's 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. However, 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. India's economic and manufacturing growth continued to rise in the first half of 2015, and EIA projects India's petroleum and other liquids consumption will increase by 0.2 million b/d in 2015 and 2016, compared with 0.1 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 0.4 million b/d in 2015 and by 0.3 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 grow slowly. The United States is the leading contributor to projected OECD consumption growth in 2015, with U.S. consumption increasing by 0.4 million b/d, while consumption in both the United States and Europe increases by about 0.1 million b/d in 2016. The degree to which global oil demand responds to lower oil prices is only beginning to become apparent in the data, and, if that response deviates from forecast values, it could affect market balances and prices.

Figure 6: World Liquid Fuels Consumption Growth

Non-OPEC Petroleum and Other Liquids Supply

EIA estimates that non-OPEC petroleum and other liquids production grew by 2.3 million b/d in 2014, which mainly reflects production growth in the United States. EIA expects non-OPEC production to grow by 1.4 million b/d in 2015 and by 0.2 million b/d in 2016. After remaining relatively flat in 2015, production in Eurasia is projected to decline by 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 0.8 million b/d in June 2015, unchanged compared with the previous month as May outages in Canada extended into June. Wildfires in western Canada that started in the second half of May led to oil sands production outages averaging about 0.1 million b/d for May and June. Oil sands projects that had been shut down because of the fires resumed production in the second week of June. Recent violence in Yemen continues to interrupt operations at an oil port and refinery. South Sudan, Syria, and Yemen accounted for more than 75% of total non-OPEC supply disruptions in June.

OPEC Petroleum and Other Liquids Supply

EIA estimates that 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. EIA forecasts OPEC crude oil production to increase by 0.6 million b/d in 2015 and decrease by 0.2 million b/d in 2016. Iraq is expected to be the largest contributor to OPEC production growth in 2015. At the OPEC meeting on June 5, the group did not change its 30 million b/d crude oil production target. EIA forecasts OPEC crude oil production will continue to exceed that target over the forecast period, contributing to expected global inventory builds.

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. Negotiations continued beyond the June 30 target, and July 7 was agreed as the new target date for a comprehensive agreement. However, no agreement had been reached by the time of this writing. 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 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. The sanctions forced Iran to shut in a substantial portion of its production, lowering output to an estimated 2.9 million b/d in June 2015. 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, 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 oil 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 0.1 million b/d in 2015 and by 0.2 million b/d in 2016, led by production increases in Qatar, Iran, and Kuwait.

In June, unplanned crude oil supply disruptions among OPEC producers averaged 2.5 million b/d, unchanged from May. Higher disruptions in May in Kuwait and Saudi Arabia extended into June. Production at the Wafra field, located in the Neutral Zone that straddles Kuwait and Saudi Arabia, ceased in mid-May as the operators attempted to resolve a contract dispute. The continued suspension of Wafra's production increased disruptions in June by a total of 0.1 million b/d, split between Kuwait and Saudi Arabia. This suspension came after the previous production shut-in at the Khafji field in the Neutral Zone.

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 oil market, but the current and forecast levels of global inventory builds make the projected low surplus capacity level in 2015 less significant.

OECD Petroleum Inventories

EIA estimates that OECD commercial oil inventories totaled 2.69 billion barrels at the end of 2014, equivalent to roughly 59 days of consumption. Projected OECD oil inventories rise to 2.95 billion barrels at the end of 2015 and then to 3.00 billion barrels at the end of 2016.

Crude Oil Prices

North Sea Brent crude oil spot prices decreased by $3/b in June to a monthly average of $61/b. Oil prices have been relatively stable in recent months despite consistent growth in global petroleum and other liquids inventories, which grew by an estimated 1.9 million b/d in June and an average of almost 3.0 million b/d April and May, compared with an average build of 0.8 million b/d in the second quarter of 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 increased to an average of $60/b in June, up $1/b from May. After increasing for 20 consecutive weeks to a record 62.2 million barrels on April 17, crude oil inventories at Cushing, Oklahoma, have since decreased by 5.8 million barrels as of June 26. Along with falling Cushing inventories, strong U.S. refinery runs and production outages in Canada have put upward pressure on the price of WTI crude oil.

EIA projects the Brent crude oil price will average $60/b in 2015 and $67/b in 2016, both unchanged from last month's STEO. WTI prices in both 2015 and 2016 are expected to average $5/b less than the Brent crude oil price. However, this price projection remains subject to the uncertainties surrounding the possible lifting of sanctions against Iran and other market events. In addition, there is potential downward price pressure in the second half 2015 once refinery runs moderate following the seasonal peaks in demand from the summer driving 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 October 2015 delivery traded during the five-day period ending July 1 averaged $59/b, while implied volatility averaged 31%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in October 2015 at $45/b and $79/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $41/b and $89/b for prices in December 2015. Last year at this time, WTI for October 2014 delivery averaged $104/b, and implied volatility averaged 14%. The corresponding lower and upper limits of the 95% confidence interval were $92/b and $118/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 54.60 56.92 58.37 58.55
OPEC Production 36.42 36.35 37.09 37.12
OPEC Crude Oil Portion 30.12 30.08 30.71 30.55
Total World Production 91.02 93.27 95.46 95.67
OECD Commercial Inventory (end-of-year) 2550 2693 2950 3001
Total OPEC surplus crude oil production capacity 2.13 2.03 1.77 2.13
OECD Consumption 46.03 45.67 46.10 46.36
Non-OECD Consumption 45.25 46.69 47.53 48.67
Total World Consumption 91.28 92.36 93.63 95.03
Primary Assumptions (percent change from prior year)
World Real Gross Domestic Producta 2.7 2.8 2.5 3.1
Real U.S. Dollar Exchange Rateb 3.7 3.6 9.7 1.2

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