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Short-Term Energy Outlook

Release Date: May 10, 2016  |  Next Release Date: June 7, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Global Petroleum and Other Liquids

EIA estimates that global petroleum and other liquid fuels inventory builds will average 1.0 million b/d in 2016 and 0.2 million b/d in 2017.

Inventory builds are expected to continue through the first half of 2017, but at a generally decreasing rate. An inventory draw of 0.3 million b/d is expected in the third quarter of 2017. Lower inventory builds in this STEO compared with last month' s STEO mainly reflect revised historical rates of demand growth for 2015, along with the expectation of higher demand growth in 2016 and 2017.

Global Petroleum and Other Liquids Consumption

EIA increased its estimates of historical and forecast global consumption for 2015–17 compared with the April STEO. Global consumption of petroleum and other liquid fuels is now estimated to have grown by 1.4 million b/d in 2015 (0.1 million b/d higher than previously estimated). Changes to global consumption mainly reflect upward revisions to 2015 growth in both China and India of 0.1 million b/d, which were partially offset by reductions to estimated consumption growth in Europe. EIA estimates that China's consumption grew by more than 0.4 million b/d in 2015, driven by increased use of gasoline, jet fuel, and hydrocarbon gas liquids (HGL), which more than offset decreases in diesel consumption. Increased use of HGL, in particular, had a large effect on consumption growth, where an increase in the number of propane dehydrogenation (PDH) plants led to an increased use of propane. Similarly, India's fuel consumption growth for 2015 was revised up to 0.3 million b/d (0.1 million b/d higher than previously estimated), mainly in transportation, coal mining, and industrial activities.

EIA now expects global consumption of petroleum and other liquid fuels to increase by 1.4 million b/d in 2016 and by 1.5 million b/d in 2017, growth that is 0.3 million b/d and 0.2 million b/d higher, respectively, than forecast in the April STEO. Many of the same drivers that prompted revisions to 2015 demand growth rates are expected to continue affecting demand in the forecast period. China's consumption is forecast to grow by 0.4 million b/d in both 2016 and 2017. EIA expects that China's demand for HGL will continue to grow at a fairly steady pace as additional PDH plants come online, including Oriental Energy's plant in Zhejiang and Haiwei's plant in Hebei. Gasoline and jet fuel consumption is also expected to grow in 2016. Similarly, EIA expects continued strength in India's consumption growth through the forecast period, particularly transportation fuel consumption, which is expected to drive year-on-year increases of 0.3 million b/d in both 2016 and 2017.

Overall consumption of petroleum and other liquid fuels in countries outside of the Organization for Economic Cooperation and Development (OECD) increased by an estimated 0.9 million b/d in 2015. Non-OECD consumption growth is expected to be 1.2 million b/d in 2016 and 1.4 million b/d in 2017.

OECD petroleum and other liquid fuels consumption rose by 0.5 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. In the OECD, growth in U.S. consumption more than offsets decreases in consumption in OECD Europe and Japan in 2016 and 2017.

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 1.6 million b/d in 2015, with most of the growth occurring in North America. EIA expects non-OPEC production to decline by 0.7 million b/d in 2016 and by 0.2 million b/d in 2017, with most of the production declines occurring in the United States.

Changes in non-OPEC production are largely driven by changes in U.S. tight oil production, which is characterized by high production decline rates and relatively short investment horizons, making it among the most price-sensitive oil production globally. However, increases in 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. production of liquid fuels declines by 0.6 million b/d in 2016 and by 0.1 million b/d in 2017, as declining crude oil production is partially offset by expected growth in HGL production, liquid biofuels production, and refinery processing gain. Outside of the United States, forecast non-OPEC production declines by 0.2 million b/d in 2016 and by 0.1 million b/d in 2017.

Petroleum and other liquids production, with the exception of U.S. tight oil plays, is relatively robust through 2017 because of investments that were committed to projects when oil prices were higher. Although oil companies have reduced investments, most of the cuts have been to 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 Asia and 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 starts of several projects are not enough to offset the region's natural decline rates. Production is expected to fall in China over the forecast period by nearly 0.2 million b/d as the three largest state-owned oil companies have announced capital expenditure cuts and output reductions, mainly from mature fields that require high investment to maintain production. Also, fewer new offshore developments in China are expected to come online in 2016 compared with 2015.

Canada's production is expected to increase by less than 0.1 million b/d in 2016 and by 0.3 million b/d in 2017. Compared with the April STEO, EIA revised its outlook for Canada's 2016 production growth downward by almost 0.2 million b/d on average to reflect oil sands production outages caused by wildfires. On May 4, wildfires reached the city of Fort McMurray, Alberta, which houses many of the workers and support infrastructure related to Canada's oil sands operations. At the time of writing, Fort McMurray has been evacuated, but there is no known damage to any oil sands facility. However, Suncor, Shell Albian Sands, and Syncrude are among the oil sands companies confirming production outages or reduced rates at their sites. EIA expects that Canada's production in the second-quarter of 2016 will fall by an average of 0.5 million b/d from first-quarter levels, before returning to first quarter levels in the third quarter.

Non-OPEC unplanned supply outages in April were almost 0.4 million b/d. A fire at one of Brazil's offshore platforms in mid-March shut in about 50,000 b/d of production. In Colombia, attacks on pipelines kept about 20,000 b/d of production shut in. EIA will publish its estimate of disrupted volumes in Canada in the June STEO, but depending on how the situation develops, unplanned outages could extend into the summer.

OPEC Petroleum and Other Liquids Supply

OPEC crude oil production averaged 31.5 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 rises by 0.9 million b/d in 2016, with Iran accounting for most of the increase. Forecast OPEC production rises by an additional 0.7 million b/d in 2017. The forecast does not assume a collaborative production cut among OPEC members and other producers in the forecast period, as major OPEC producers are expected to 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 almost 2.5 million b/d in April, 0.2 million b/d higher than in March. In April, disrupted volumes increased in Kuwait, where an oil worker labor strike resulted in 0.2 million b/d of shut-in production. The Kuwait Oil Company workers' strike lasted only four days, but output at its oil fields was reduced by as much as 60% during the industrial action. Overall, Kuwait's shut-in volumes totaled nearly 0.5 million b/d, half of which are continued disrupted volumes in the Neutral Zone.

OPEC surplus crude oil production capacity, which averaged 1.6 million b/d in 2015, is expected to be 1.5 million b/d in 2016 and 1.3 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 through the first half of 2017 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 were 3.00 billion barrels at the end of 2015, equivalent to roughly 66 days of consumption. Forecast OECD inventories rise to 3.11 billion barrels at the end of 2016 and are expected to be at the same level at the end of 2017.

Crude Oil Prices

Brent crude oil spot prices increased by $3/b in April to a monthly average of $42/b, which was the highest monthly average for Brent so far this year. This was the third consecutive increase in the monthly average Brent price, the longest such stretch since April-June 2014. Several factors put upward pressure on crude oil prices in April: improving economic data and related indications that global oil demand growth is accelerating; ongoing declines in the U.S. rig count and crude oil production; and growing oil supply outages.

Despite the recent increase in prices, EIA expects global oil inventory builds to average 0.9 million b/d in the second and third quarters of 2016, limiting upward price pressures in the coming months. Brent prices are expected to average $42/b in the second and third quarters of 2016, before rising to $44/b in the fourth quarter as a result of slowing global oil inventory growth.

EIA expects global oil inventory draws to begin in the third quarter of 2017. The expected inventory draws contribute to forecast rising prices in the first half of 2017, with price increases expected to accelerate later in 2017. Brent prices are forecast to average $51/b in 2017, $10/b higher than forecast in last month's STEO. Forecast Brent prices reach an average of $57/b in the fourth quarter of 2017, reflecting the potential for more significant inventory draws beyond the forecast period.

The higher oil price forecast in this month's STEO compared with the April STEO largely reflects tighter market balances, particularly for the second half of 2017, based on a stronger outlook for global oil consumption. Higher oil consumption data in non-OECD Asia, supported by economic data, contributed to upward revisions for global oil consumption growth of 0.3 million b/d and 0.2 million b/d in 2016 and 2017, respectively. Previously, the pace of economic growth and related oil demand growth had been considered one of the main downside risks to oil prices in the forecast period, and although economic risks remain, they are lower than previously assumed.

In addition, a recent increase in global oil supply outages has taken pressure off storage capacity in the near term. These supply reductions were reflected in a narrowing differential for oil prices for near-term delivery compared with prices for delivery further in the future. Increased outages have reduced the possibility that inventory growth will cause storage costs to quickly rise and put downward pressure on oil prices.

Forecast West Texas Intermediate (WTI) crude oil prices average slightly less than Brent crude oil in 2016 and the same as the Brent price in 2017. The relative 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 price differentials to move the crudes from their respective pricing points to that market are similar.

The current values of futures and options contracts highlight the heightened volatility and high uncertainty in the oil price outlook (Market Prices and Uncertainty Report). WTI futures contracts for August 2016 delivery that were traded during the five-day period ending May 5 averaged $46/b, and implied volatility averaged 41%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in August 2016 at $32/b and $65/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $26/b and $83/b for prices in December 2016. At this time last year, WTI for August 2015 delivery averaged $61/b, and implied volatility averaged 33%, with the corresponding lower and upper limits of the 95% confidence interval at $46/b and $81/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 56.07 57.64 56.90 56.69
OPEC Production 37.24 38.13 39.33 40.30
OPEC Crude Oil Portion 30.77 31.55 32.43 33.09
Total World Production 93.31 95.77 96.23 96.99
OECD Commercial Inventory (end-of-year) 2721 2997 3106 3106
Total OPEC surplus crude oil production capacity 2.07 1.59 1.54 1.33
OECD Consumption 45.77 46.23 46.45 46.58
Non-OECD Consumption 46.64 47.58 48.79 50.20
Total World Consumption 92.41 93.81 95.24 96.78
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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