Release date: November 12, 2020 | Next release date: November 18, 2020
U.S. crude oil production forecast to decline until mid-2021 before returning to current levels
In the U.S. Energy Information Administration’s (EIA) November Short-Term Energy Outlook (STEO), U.S. crude oil production generally declines through the first half of 2021 and increases in the second half of the year. EIA expects that declining legacy well production will offset production from new wells in the first half of 2021, resulting in U.S. crude oil production declines. As more new wells come online later in 2021 (supported by forecast year-over-year crude oil price increases), forecast new well production reaches levels that exceed the legacy well declines, resulting in increasing crude oil production (Figure 1).
According to EIA data, total U.S. crude oil production reached a record 12.9 million barrels per day (b/d) in November 2019 and was at 12.7 million b/d in March 2020, when the President declared a national emergency concerning the COVID-19 outbreak. Crude oil production then fell to 10.0 million b/d in May 2020, the lowest level since January 2018. Between May and August 2020 (the latest monthly data available), production rose to 10.6 million b/d, likely as operators reduced curtailments as the price for West Texas Intermediate (WTI) increased from a low of $17 per barrel (b) in April to $42/b in August. EIA forecasts that the WTI price will average $43/b in the first half of 2021, up from a forecast average of $40/b during the second half of 2020 (Figure 2).
Despite the return of previously curtailed crude oil output, EIA expects that total production will fall through the first half of 2021 because production from new wells will not be great enough to offset legacy well production declines. During the second half of 2021, however, EIA forecasts that the WTI price will stay above $45/b, and as a result, EIA forecasts that total production will rise as production from new wells exceeds legacy well production declines. Annual U.S crude oil production will average 11.1 million b/d in 2021, down 9% from 2019 levels and down 3% from 2020 levels.
EIA estimates that the lag between price signals and changes in rig activity is typically four months, and changes in production take an additional two months to manifest (six total months from a change in price to a change in production. According to Baker Hughes, the U.S. oil-directed rig count increased from a recent low of 172 rigs on August 14 to 226 rigs as of November 6. Of the 54 oil-directed rigs added since mid-August, 30 have been added in the Permian region. Despite the additional rigs, production from new wells will not be enough to offset production declines from legacy wells through the first half of 2021. EIA expects crude oil production in the Permian region to fall by 230,000 b/d from the fourth quarter of 2020 to an average of 4.2 million b/d in the second quarter of 2021 before increasing to 4.3 million b/d in the fourth quarter of 2021. Crude oil production in the Permian region will increase in the second half of 2021 as WTI crude oil price increases in the first half of the year provide incentive to increase production, and EIA expects that the production from new wells will exceed legacy production declines.
The Permian region drives the changes in the forecast, and from October 2020 to May 2021 (the lowest production point for the Lower 48 states in the forecast) EIA forecasts production in the Permian region to decline by 289,000 b/d. During the same period, production in the Lower 48 states (excluding the Federal Offshore Gulf of Mexico) will decline by 408,000 b/d. From May 2021 to December 2021, Permian production will increase by 157,000 b/d, while production in the Lower 48 states will increase by 400,000 b/d (Figure 3).
EIA expects crude oil production in the Eagle Ford to gradually increase from 1.1 million b/d in the fourth quarter of 2020 to 1.2 million b/d in the fourth quarter of 2021. Production in the Bakken region will fall nearly 80,000 b/d from the fourth quarter of 2020 and average 1.1 million b/d in the second quarter of 2021 before increasing to 1.2 million b/d in the fourth quarter of 2021.
In the latest STEO, EIA forecasts crude oil production in the Federal Offshore Gulf of Mexico (GOM) in 2021 to increase following an active 2020 hurricane season. Over the second half of 2020, which includes hurricane season, GOM crude oil production will average 1.6 million b/d. EIA expects crude oil production in the GOM in 2020 to average 1.7 million b/d in 2020, and increase to 1.8 million b/d in 2021.
The U.S. crude oil production forecast reflects EIA’s expectations that global petroleum demand will not recover to the 2019 level prior to the end of 2021. EIA forecasts that global petroleum consumption will average 98.8 milllion b/d in 2021, down from 101.5 million b/d in 2019 (before responses to COVID-19 limited demand). The 2021 forecast consumption will be higher than the forecast consumption of 92.9 million b/d in 2020. The increased demand compared with 2020 contributes to a higher expected crude oil price in 2021, and EIA expects that the Brent price will average $47/b in 2021, $6/b higher than in 2020.
EIA’s crude oil price forecast remains subject to a high degree of uncertainty. As of early November, members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) were considering plans to keep production at current levels, which could result in higher crude oil prices. Previously OPEC+ planned to easing production cuts in January 2021. In contrast, lower-than-expected global demand could result in crude oil prices that are lower than EIA forecast. Some states have been adding restrictions and countries in Europe are re-instituting lockdown measures because of increasing cases of COVID-19.
U.S. average regular gasoline price decreases, diesel price increases
The U.S. average regular gasoline retail price decreased nearly 2 cents to $2.10 per gallon on November 9, 52 cents lower than the same time last year. The Gulf Coast price decreased nearly 4 cents to $1.75 per gallon, the East Coast price decreased more than 2 cents to $2.05 per gallon, the Rocky Mountain price decreased nearly 2 cents to $2.20 per gallon, the West Coast price decreased nearly 1 cent, remaining virtually unchanged at $2.77 per gallon, and the Midwest price decreased less than 1 cent, remaining virtually unchanged at $1.97 per gallon.
The U.S. average diesel fuel price increased more than 1 cent to $2.38 per gallon on November 9, 69 cents lower than a year ago. The Rocky Mountain price increased nearly 5 cents to $2.37 per gallon, the West Coast and Midwest prices each increased nearly 2 cents to $2.94 per gallon and $2.26 per gallon, respectively, the East Coast price increased nearly 1 cent to $2.45 per gallon, and the Gulf Coast price increased less than 1 cent, remaining virtually unchanged at $2.13 per gallon.
Propane/propylene inventories decline
U.S. propane/propylene stocks decreased by 0.9 million barrels last week to 94.9 million barrels as of November 6, 2020, 6.5 million barrels (7.3%) greater than the five-year (2015-19) average inventory levels for this same time of year. Gulf Coast inventories decreased by 2.0 million barrels, and Rocky Mountain/West Coast inventories decreased slightly, remaining virtually unchanged. East Coast and Midwest inventories increased by 0.8 million barrels and 0.3 million barrels, respectively.
Residential heating fuel prices increase
As of November 9, 2020, residential heating oil prices averaged more than $2.15 per gallon, more than 2 cents per gallon above last week’s price but 82 cents per gallon lower than last year’s price at this time. Wholesale heating oil prices averaged nearly $1.29 per gallon, more than 10 cents per gallon above last week’s price but almost 74 cents per gallon lower than last year.
Residential propane prices averaged more than $1.83 per gallon, more than 1 cent per gallon above last week’s price but nearly 11 cents per gallon below last year’s price. Wholesale propane prices averaged almost $0.71 per gallon, more than 2 cents per gallon above last week’s price but more than 5 cents per gallon below last year’s price.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 11/09/20 | Week | Year | |
| Gasoline | 2.096 | -0.016 | -0.519 |
| Diesel | 2.383 | 0.011 | -0.690 |
| Heating Oil | 2.152 | 0.021 | -0.820 |
| Propane | 1.833 | 0.012 | -0.109 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 11/06/20 | Week | Year | |
| Crude oil | 37.14 | 1.35 | -20.10 |
| Gasoline | 1.084 | 0.034 | -0.550 |
| Heating oil | 1.143 | 0.062 | -0.775 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 11/06/20 | Week | Year | |
| Crude oil | 488.7 | 4.3 | 39.7 |
| Gasoline | 225.4 | -2.3 | 6.3 |
| Distillate | 149.3 | -5.4 | 32.6 |
| Propane | 94.889 | -0.939 | 1.974 |