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Short-Term Energy Outlook

Release Date: July 10, 2018  |  Next Release Date: August 7, 2018  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Global Liquid Fuels

Forecast global liquid fuels balances indicate a looser oil market in the second half of 2018 and through the end of 2019 compared with the tight oil market conditions that prevailed for 2017 and the first half of 2018. Although global petroleum and other liquid fuels inventories declined by an average of 0.5 million barrels per day (b/d) in 2017, EIA expects inventories to be relatively unchanged in 2018 and to increase by 0.6 million b/d in 2019.

As a result of the decline in global oil inventories in 2017, the Brent crude oil spot price averaged $54 per barrel (b) last year, $10/b higher than in 2016. EIA’s estimated global inventory draw of 0.2 million b/d in the first half of 2018 put additional upward pressure on Brent prices, pushing them to an average of $75/b in the second quarter. EIA expects that inventory builds forecast for the second half of 2018 through 2019 will put modest downward pressure on oil prices and contribute to Brent crude oil prices averaging $73/b for the second half of 2018 and $69/b in 2019.

The forecast inventory builds in 2019 are mainly the result of expected liquid fuels production growth in the United States, Brazil, Canada, and Russia. EIA forecasts that these countries will provide 2.2 million b/d out of the 2.4 million b/d of total global supply growth in 2019. Supply growth of this magnitude outpaces EIA’s forecast for global liquid fuels consumption growth of 1.7 million b/d for 2019. However, inventory levels that have fallen below the five-year (2013–17) average and a forecast of low spare capacity among members of the Organization of the Petroleum Exporting Countries (OPEC) create conditions for possible price increases if additional supply disruptions occur or if forecast supply growth does not materialize.

World liquid fuels production and consumption balance

Global Petroleum and Other Liquid Fuels Consumption. Global Petroleum and Other Liquid Fuels Consumption. Global consumption of petroleum and other liquid fuels grew by 1.6 million b/d in 2017, reaching an average of 98.5 million b/d for the year. EIA expects consumption growth to average 1.7 million b/d in 2018 and in 2019, driven by the countries outside of the Organization for Economic Cooperation and Development (OECD). Non-OECD liquid fuels consumption growth accounts for 1.3 million b/d of the global growth in 2018 and in 2019. The non-OECD liquid fuels consumption growth is driven by forecast growth in non-OECD gross domestic product (GDP) that averages 4.1% in 2018 and in 2019.

World liquid fuels consumption

EIA expects China and India to be the largest contributors to growth in non-OECD petroleum and other liquid fuels consumption in 2018 and in 2019. China’s liquid fuels consumption is expected to increase by almost 0.5 million b/d in both years, led by growth in gasoline and jet fuel consumption. EIA also expects increased consumption in China’s petrochemical sector to contribute to liquid fuels consumption growth. China is set to add a number of propane-consuming petrochemical plants, with the consumption boost from the sector assumed to add 55,000 b/d in 2018 and an additional 75,000 b/d in 2019. Forecast liquid fuels consumption in India grows by almost 0.3 million b/d in 2018 and in 2019. This growth would be higher than the 2017 growth of 0.1 million b/d, which was limited, partly because of monetary and fiscal policy changes.

EIA forecasts that liquids consumption in the Middle East will increase by almost 0.2 million b/d in 2018 and in 2019. Saudi Arabia’s oil consumption is forecast to continue to increase despite expanding natural gas use for electric power generation that offsets direct crude oil burn for power generation. EIA expects that Saudi Arabia’s direct crude oil burn for electric power generation will remain at about the 2017 level throughout the forecast period.

EIA expects that liquid fuels consumption in Central and South America will fall by 50,000 b/d in 2018 compared with 2017, mainly as a result of continued economic contraction in Venezuela. However, the region’s consumption is expected to grow by 70,000 b/d in 2019. EIA expects Brazil to be the main driver of the region’s growth in 2019, with liquid fuels consumption forecast to rise by 80,000 b/d next year.

OECD petroleum and other liquid fuels consumption is forecast to grow by almost 0.5 million b/d in 2018 and by 0.4 million b/d in 2019, with the United States accounting for most of the OECD growth. EIA forecasts that Europe’s liquid fuels consumption will grow by an average of 0.1 million b/d in 2018 and in 2019. Japan is expected to see liquid fuels consumption decline by an average of 0.1 million b/d in 2018 and in 2019.

World liquid fuels consumption growth

Non-OPEC Petroleum and Other Liquid Fuels Supply. EIA forecasts that non-OPEC petroleum and other liquid fuels supply will increase by 2.6 million b/d in 2018. Combined production growth of 2.4 million b/d in the United States and Canada accounts for most of the 2018 supply growth. EIA expects non-OPEC petroleum and other liquid fuels production to rise by another 2.3 million b/d in 2019. Combined production growth of 1.7 million b/d in the United States and Canada is again forecast to contribute most of this growth, and Brazil’s production is expected to grow by 0.3 million b/d in 2019.

World liquid fuels production and consumption balance

EIA forecasts that Canada’s petroleum and other liquid fuels production will grow by 0.3 million b/d in 2018 and by 0.2 million b/d in 2019. In Canada, oil sands projects continue to drive production growth during the forecast period, and new phases of the Horizon oil sands project, Fort Hills project, and Hebron project add production. Various project phases, including expansions and debottlenecking efforts, are scheduled to come online in 2018.

Brazil’s petroleum and other liquid fuels production is expected to grow by 0.2 million b/d in 2018 and by 0.3 million b/d in 2019, accounting for the third-highest source of non-OPEC production growth in 2018 and the second-highest source in 2019, resource development and recent regulatory changes in the Brazilian oil industry are the main drivers of the growth. Continued implementation of reforms, including those to local content rules, are expected to result in higher production growth during the forecast period. Much of the growth in Brazil is expected to come from the Lula field, which started producing in November 2017 and reached 0.9 million b/d of output in April 2018. In addition to Lula, production in the Buzios field is also rising. The April 2018 production start-up at the Buzios field, with the P-74 floating production, storage, and offloading (FPSO) facility, came online at 0.15 million b/d.

Other sources of growth for non-OPEC petroleum and other liquid fuels production in 2018 and 2019 include Russia and Kazakhstan. EIA expects production increases in these two countries as a result of the recent production agreement between OPEC and some non-OPEC countries to raise output. Although no official production targets were allocated to any of the signatories of the OPEC/non-OPEC production agreement following the June 2018 meeting, EIA expects Russia’s liquid fuels production to grow by less than 0.1 million b/d in 2018 and by 0.2 million b/d in 2019. Russia’s oil companies reportedly have about 0.3 million b/d of available production capacity that could be brought online within a relatively short period of time.

EIA expects non-OPEC supply growth in the United States, Canada, Brazil, and Russia to be partially offset by declines in several other non-OPEC producers in 2018 and in 2019. Among the countries in which EIA is forecasting supply to fall the most in 2019 are Egypt, Indonesia, Norway, and Mexico.

Non-OPEC unplanned supply outages in June 2018 were 0.4 million b/d, up about 0.1 million b/d from the May level. The increase largely reflects rising outages in Canada, where an average of 0.1 million b/d of production was shut in. Production at Syncrude Canada's 350,000 b/d oil sands facility near Fort McMurray, Alberta, is expected to remain offline through at least the end of July because of a power outage that occurred on June 20, 2018. So far in 2018, non-OPEC unplanned supply outages averaged about 0.5 million b/d, about 0.1 million b/d lower than the 2017 annual average.

Estimated unplanned crude oil production among OPEC and non-OPEC producers

OPEC Petroleum and Other Liquid Fuels Supply. OPEC crude oil production is expected to average 31.9 million b/d in 2018, a decrease of 0.6 million b/d compared with the 2017 level. The forecast decline is mainly the result of rapidly decreasing crude oil production in Venezuela, which has fallen to less than 1.4 million b/d as of June 2018, a 0.6 million b/d decrease compared with June 2017. OPEC output during the first half of 2018 was also lower as a result of the production caps placed on the group’s members as agreed upon in the November 2016 OPEC production agreement that aimed to limit OPEC crude oil output to 32.5 million b/d.

OPEC crude oil production averaged 31.9 million b/d in June. Although the OPEC and non-OPEC participants agreed on November 30, 2017, to extend the production cuts through the end of 2018 in order to reduce global oil inventories, tightening market conditions led the group to relax the production cuts starting in July 2018. EIA expects that OPEC crude oil output will decrease by less than 0.1 million b/d on average in 2019. The small decline in forecast OPEC production in 2019 reflects crude oil production increases from some producers that mostly make up for expected declines of more than 1.0 million b/d in Iran and Venezuela combined.

The July STEO reflects the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) and the plan to reinstitute sanctions on companies doing business with Iran. Even though no U.S. companies are directly involved with Iranian companies, many European and Asian banks, insurers, and oil companies announced they might reduce commercial activity with Iran in light of potential U.S. sanctions. Sanctions will likely have a direct effect on the Iranian oil sector, which would limit crude oil exports and production from the country by the end of 2018.

EIA also expects Venezuela’s production to continue to fall through the forecast period as the financial situation of the state-owned Petróleos de Venezuela (PdVSA) and the Venezuelan government becomes more precarious. Venezuela, which relies heavily on oil revenues, has seen its cash income severely constricted because only about half of the exports generate cash revenues. The country’s midstream, downstream, and export facilities are also experiencing difficulties. In a recent legal setback for PdVSA, ConocoPhillips successfully seized PdVSA Caribbean assets following a $2 billion award the company received in April 2018 as compensation for the seizure of its assets in Venezuela. PdVSA depends on its Caribbean assets to export extra-heavy crude oil to Asia. This latest action will severely hamper Venezuela’s ability to prevent production from declining further. Recent news reports indicate that loadings from Venezuela’s Jose terminal are experiencing delays, and the country’s terminals are unable to make up for the lost export capacity in the Caribbean, leading to further declines in production. Meanwhile, the remaining operating upgraders in the country have been taken out of service for maintenance, raising serious concerns as to whether they will be able to restart any time soon.

After averaging 6.8 million b/d in 2017, OPEC noncrude oil liquids production, mostly condensate related to natural gas production, is expected to rise to 7.0 million b/d in 2018 and to 7.2 million b/d in 2019, led by increases in Iran and Qatar.

OPEC unplanned crude oil supply disruptions averaged 1.7 million b/d in June, which increased by 0.3 million b/d compared with May. The increase in outages reflects higher production shut-ins in Nigeria where the Trans Forcados pipeline was shut in May, and remains out of service, affecting production of the Forcados crude oil stream. In addition, Shell declared force majeure on Bonny Light exports following the shutdown of the Nembe Creek Trunk Line. In Libya, outages also increased during June as two of the country’s ports, Es Sider and Ras Lanuf, closed.

The closure of these two ports initially affected about 0.4 million b/d of Libya’s production, which was more than 1.0 million b/d before the most recent outages. The outages occurred when the Petroleum Facilities Guards attacked and occupied the ports in mid-June 2018. Since then, the ports have been taken over by the Libyan National Army (LNA). LNA has turned over the facilities to the National Oil Company in the East, which is not an internationally recognized entity and is not permitted to export crude oil from Libya. Production at the fields that export crude oil through Es Sider and Ras Lanuf remains shut in. In early July, Libya’s National Oil Corporation issued a force majeure at the Hariga and Zuetinia terminals as a result of LNA’s decision to prevent tankers from entering the two ports to load crude. This latest action has resulted in additional disruptions of 0.2 million b/d, leaving crude oil production in the country at 0.4 million b/d at the time of writing.

EIA expects OPEC surplus production capacity to average 1.7 million b/d in 2018 and to fall to 1.3 million b/d in 2019, a relatively low level compared with the 2008–17 average of 2.3 million b/d. Low OPEC crude oil surplus production capacity can be an indicator of tight oil market conditions. All of OPEC’s surplus production capacity currently available is in Saudi Arabia, Kuwait, the United Arab Emirates, and Qatar.

OPEC surplus crude oil production capacity

Republic of Congo (Congo Brazzaville) joined OPEC effective July 1, 2018, becoming the seventh African state to join the organization. Starting with the August 2018 STEO, EIA will include Congo’s production in the OPEC total in the historical data and in the forecast. During the first six months of 2018, EIA estimates that Congo’s crude oil production averaged about 340,000 b/d, with approximately an additional 10,000 b/d in noncrude liquids.

OECD Petroleum Inventories. EIA forecasts that OECD commercial crude oil and other liquid fuels inventories will be 2.84 billion barrels at the end of 2018, equivalent to 60 days of consumption. In terms of days of supply, this level is expected to be 1% below the five-year average for the end of the year. OECD inventories are forecast to rise to 2.98 billion barrels at the end of 2019.

OECD commercial stocks of crude oil and other liquids (days of supply)

Crude Oil Prices. The monthly average spot price of Brent crude oil decreased by $3/b in June to $74/b. Despite the decline, June marked the third consecutive month in which Brent crude oil spot prices averaged more than $70/b. The price decline in June largely reflected market expectations in the early part of the month that OPEC, along with certain non-OPEC producers including Russia, would announce a production increase at the June 22–23 meetings.

Although OPEC/non-OPEC producers did announce plans to increase production starting on July 1, Brent crude oil prices increased after the announcement. The price increases possibly reflected expectations by market participants that announced production increases would not be enough to offset falling production levels in Venezuela and Libya, along with the potential for reduced volumes from Iran following the U.S. withdrawal from the JCPOA.

Brent crude oil spot prices have risen from an average of $50/b in the second quarter of 2017 to an average of $75/b in the second quarter of 2018. The rising prices largely reflect continuing draws in global oil inventory levels. EIA estimates that global petroleum and other liquid fuel inventories fell by an average of 0.5 million b/d in 2017 and by 0.2 million b/d in the first half of 2018. EIA expects strong growth in U.S. and other non-OPEC liquid fuels production will contribute to global oil inventories rising by 0.1 million b/d in the second half of 2018 and by 0.6 million b/d in 2019. EIA forecasts the inventory builds in the second half of 2018 through 2019 will contribute to Brent crude oil prices declining from current levels to an average of $72/b in the fourth quarter of 2018. Prices are then expected to fall further to an average of $69/b in 2019.

The forecast for Brent crude oil spot prices for the second half of 2018 and all of 2019 is $1/b higher than in last month’s STEO. Although forecast global oil inventories builds in 2019 are expected to be higher than the forecast in the June STEO, these builds will help build OECD oil inventories that have fallen below five-year average levels on a days-of-supply basis. For much of the second half of 2018 and 2019, total OECD inventories are forecast to be lower than the five-year average on a days-of-supply basis, and OPEC spare crude oil production capacity is expected to be low compared with historical levels. This combination of relatively low inventory and spare capacity levels elevates the risk of upward price movements in the event of a supply disruption.

Daily and monthly average crude oil prices could vary significantly from annual average forecasts because global economic developments and geopolitical events in the coming months have the potential to push oil prices higher or lower than the current STEO price forecast. Uncertainty remains regarding the effect of U.S. sanctions on Iran and the degree to which sanctions will take oil off the market. Additionally, the path of Venezuela’s production declines and Libya’s ability to bring back disrupted volumes is highly uncertain, as is the exact degree of the production response from other OPEC members and Russia. Developments regarding these and other variables, particularly the rate of economic growth and its effect on global oil demand growth, could influence prices in either direction. Also, the U.S. tight oil sector continues to be dynamic, and quickly evolving trends in this sector could affect both current crude oil prices and expectations for future prices.

Despite averaging nearly $7/b during June, the discount of West Texas Intermediate (WTI) crude oil prices to Brent fell to an average of $1/b during the final week of the month. The narrowing price spread was driven primarily by a crude oil production outage at a major Canadian oil sands facility, limiting crude oil volumes that could be sent to the Cushing, Oklahoma storage hub for delivery in the short term, putting upward pressure on WTI prices.

Average WTI crude oil prices are forecast to be $6/b lower than Brent prices in 2018 and $7/b lower than Brent prices in 2019. The price discount of WTI to Brent in the forecast is based on the assumption that increasing crude oil production in the Permian basin and current constraints on the capacity to transport crude oil from production areas in West Texas and from Cushing to refineries and export terminals along the U.S. Gulf Coast will persist until mid-2019. At that point, new takeaway capacity is expected to come online from West Texas to the Gulf Coast that will reduce current distribution bottlenecks throughout Texas and Oklahoma.

The current values of futures and options contracts suggest significant uncertainty in the oil price outlook. WTI futures contracts for October 2018 delivery that were traded during the five-day period ending July 5 averaged $70/b, and implied volatility averaged 25%. 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 2018 at $56/b and $87/b, respectively. The 95% confidence interval for market expectations widens slightly over time, with lower and upper limits of $50/b and $92/b, respectively, for prices in December 2018.

Global Petroleum and Other Liquids
  2016201720182019
aWeighted by oil consumption.
bForeign currency per U.S. dollar.
Supply & Consumption (million barrels per day)
Non-OPEC Production 57.9558.7361.3363.60
OPEC Production 39.2339.2838.8338.95
OPEC Crude Oil Portion 32.6832.4431.8731.79
Total World Production 97.1898.01100.16102.54
OECD Commercial Inventory (end-of-year) 2,9942,8442,8422,981
Total OPEC surplus crude oil production capacity 1.152.091.691.33
OECD Consumption 46.7447.1947.6648.11
Non-OECD Consumption 50.1651.2952.5453.80
Total World Consumption 96.9098.48100.20101.91
Primary Assumptions (percent change from prior year)
World Real Gross Domestic Producta 2.83.23.33.1
Real U.S. Dollar Exchange Rateb 2.3-0.8-1.2-1.1

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Related Figures
West Texas Intermediate (WTI) crude oil price XLSX PNG
World liquid fuels production and consumption balance XLSX PNG
Estimated unplanned crude oil production outages among OPEC and non-OPEC producers XLSX PNG
World liquid fuels consumption XLSX PNG
World liquid fuels consumption growth XLSX PNG
World crude oil and liquid fuels production XLSX PNG
World liquid fuels production and consumption XLSX PNG
OPEC surplus crude oil production capacity XLSX PNG
OECD commercial stocks of crude oil and other liquids (days of supply) XLSX PNG
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