This Week in Petroleum

Release date: April 8, 2020  |  Next release date: April 15, 2020

EIA forecasts record high global inventory builds

The 2019 novel coronavirus disease (COVID-19) pandemic has caused significant changes in energy fuel supply and demand patterns globally. Crude oil prices have fallen significantly since the beginning of 2020, largely driven by the economic contraction caused by COVID-19 and a rapid increase in crude oil supply following the suspension of previously agreed upon production cuts among the Organization of the Petroleum Exporting Countries (OPEC) and partner countries. As a result of low demand caused by COVID-19 and high levels of global crude oil production, the U.S. Energy Information Administration (EIA), in its April Short-Term Energy Outlook (STEO), forecasts large inventory builds in 2020 followed by inventory draws in 2021 (Figure 1). If realized, EIA's forecast global inventory builds of 3.9 million barrels per day (b/d) in 2020 will more than double the previous record of 1.8 million b/d set in 1998.

Figure 1. World liquid fuels production and consumption balance

It is important to note that the April STEO is subject to heightened levels of uncertainty because the impacts of COVID-19 on energy markets are still evolving. In order to better understand the heightened uncertainty surrounding this month's forecast, the April STEO highlights some of the driving assumptions that affected EIA's forecast.

In the first two quarters of 2020, EIA expects large inventory builds as a result of widespread travel limitations and sharp reductions in economic activity. If realized, the forecast inventory builds of 11.4 million b/d in the second quarter of 2020 would be larger than the previous records of 5.7 million b/d estimated for the first quarter of 2020 and 3.7 million b/d set in the second quarter of 1998. EIA expects inventory builds to fall sharply to 0.1 million b/d in the third quarter. Firmer demand growth as the global economy begins to recover and slower supply growth, particularly from non-OPEC producers, in response to lower prices will contribute to global oil inventory draws beginning in the fourth quarter of 2020. EIA expects global liquid fuels inventories will decline by 1.7 million b/d in 2021, but inventory builds in the first half of 2020 and the inventory overhang will continue to exert downward pressure on prices.

To better help customers monitor inventory builds, EIA now provides estimates of U.S. crude oil storage capacity utilization in the Weekly Petroleum Status Report (WPSR) beginning with the WPSR release on Wednesday, April 8, 2020, with data for the week ending April 3, 2020. The WPSR will include this information for an indeterminate period of time to help stakeholders better assess current market conditions. EIA will report the most recent crude oil storage capacity utilization estimates for the United States in total and for each of the five Petroleum Administration for Defense District (PADD) regions separately.

Although real-time data remain limited, EIA estimates global liquid fuels consumption declined by 11.4 million b/d in March from the 2019 annual average, and EIA forecasts that demand will decline by 17.1 million b/d in April from the 2019 average. For 2020, EIA estimates that global liquid fuels consumption will average 95.5 million b/d, down 5.2 million b/d (5.2%) from 2019. If realized, 2020 would see the largest year-over-year percentage decline in global oil consumption in EIA records starting in 1990. In the United States, EIA forecasts that total oil consumption will decline 6.5% in 2020 to average 19.1 million b/d, which would be the largest percentage decline in consumption since 1980 and the second-largest decline since 1949, the earliest EIA data available.

EIA assumes significantly lower levels of U.S. liquid fuels consumption during much of 2020 as a result of the disruptions to economic and business activity because of COVID-19 and the strict containment measures that have significantly reduced all forms of travel. These impacts are expected to be most pronounced during the second quarter of 2020, when most containment measures and wide-scale reductions in business activity are assumed to be in place. EIA expects these impacts to persist through most of 2020 but anticipates liquid fuels consumption in the second half of 2020 will gradually increase as some business activity resumes and stay-at-home orders gradually ease. EIA forecasts these travel disruptions will have the largest impacts on gasoline and jet fuel consumption in 2020. EIA expects distillate fuel oil consumption to be affected less because of assumed increases in trucking activity both for distribution and expected increases in personal deliveries of goods and food services.

Aside from these significant changes to oil demand, EIA expects global liquids supply to remain relatively strong in 2020, and EIA forecasts that total world production will average 99.4 million b/d, down only 1.2 million b/d (1.2%) from 2019 levels, as seen in Figure 1. As a result of the expiration of the OPEC agreement to curtail production, EIA forecasts that OPEC crude oil production will surpass the OPEC production levels seen in the first quarter of this year. However, EIA forecasts that low oil prices will reduce U.S. Lower 48 states' crude oil production in the second quarter of 2020 as drilling activity slows significantly. In addition, because OPEC and partner countries (collectively OPEC+) are no longer restraining production, several OPEC members have begun increasing crude oil production by bringing previously idle spare production capacity online and selling additional crude oil from storage. Despite recent news of OPEC+ emergency meetings to discuss production levels, without an agreement actually in place, EIA assumes no re-implementation of an OPEC+ agreement during the forecast period. If OPEC+ ultimately reaches an agreement, the STEO will incorporate that information in future updates.

EIA forecasts that Brent crude oil will average $23 per barrel (b) in the second quarter of 2020. As non-OPEC crude oil production begins declining in the fourth quarter of 2020 and global liquid fuels demand increases, prices will increase gradually. EIA forecasts that Brent crude oil will increase from the lows of the second quarter of 2020 to average $46/b in 2021 (Figure 2).

Figure 2. Brent crude oil price

In the April STEO, EIA expects low crude oil prices will drive down U.S. crude oil production. As U.S. production declines, net crude oil imports are expected to increase because fewer barrels will be available for export. Net exports of petroleum products will be lowest in the third quarter of 2020, when U.S. refinery runs are expected to decline significantly because of lower demand for refined products. As a result of increasing net imports of crude oil and declining net exports of petroleum products, total net imports are expected to increase. EIA expects U.S. imports and exports will be nearly equal in 2020, but that the United States will again become a net importer of crude oil and refined petroleum products in 2021. U.S. net imports will average 1.4 million b/d in 2021.

U.S. average regular gasoline and diesel prices fall

On April 6, the average regular gasoline retail price for the United States fell more than 8 cents from the previous week to $1.92 per gallon, 82 cents lower than a year ago. The Midwest and Gulf Coast prices each fell nearly 11 cents to $1.63 per gallon and $1.66 per gallon, respectively, the Rocky Mountain price fell nearly 10 cents to $2.01 per gallon, the West Coast price fell nearly 8 cents to $2.68 per gallon, and the East Coast price fell nearly 6 cents to $1.92 per gallon.

The U.S. average diesel fuel price fell nearly 4 cents from the previous week to $2.55 per gallon on April 6, 55 cents lower than a year ago. The Rocky Mountain price fell more than 5 cents to $2.54 per gallon, and the West Coast, East Coast, Midwest, and Gulf Coast prices each fell by nearly 4 cents to $3.09 per gallon, $2.63 per gallon, $2.39 per gallon, and $2.33 per gallon, respectively.

Propane/propylene inventories decline

U.S. propane/propylene stocks decreased by 0.2 million barrels last week to 64.5 million barrels as of April 3, 2020, 13.8 million barrels (27.3%) greater than the five-year (2015-19) average inventory levels for this same time of year. Gulf Coast, Rocky Mountain/West Coast, and Midwest inventories decreased by 0.6 million barrels, 0.2 million barrels, and 0.1 million barrels respectively. East Coast inventories increased by 0.7 million barrels. Propylene non-fuel-use inventories represented 8.5% of total propane/propylene inventories.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

Retail prices (dollars per gallon)

Conventional Regular Gasoline Prices Graph. On-Highway Diesel Fuel Prices Graph.
  Retail prices Change from last
  04/06/20 Week Year
Gasoline 1.924 -0.081 -0.821
Diesel 2.548 -0.038 -0.545

Futures prices (dollars per gallon*)

Crude Oil Futures Price Graph. RBOB Regular Gasoline Futures Price Graph. Heating Oil Futures Price Graph.
  Futures prices Change from last
  04/03/20 Week Year
Crude oil 28.34 6.83 -34.74
Gasoline 0.692 0.118 -1.277
Heating oil 1.071 0.002 -0.971
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

U.S. Crude Oil Stocks Graph. U.S. Distillate Stocks Graph. U.S. Gasoline Stocks Graph. U.S. Propane Stocks Graph.
  Stocks Change from last
  04/03/20 Week Year
Crude oil 484.4 15.2 27.8
Gasoline 257.3 10.5 28.2
Distillate 122.7 0.5 -5.3
Propane 64.500 -0.168 10.139