Energy Preview: Crude Oil Futures Outlook Seen Flat For This Year

Andrew Cummings
January 13, 2018

The EIA said U.S. crude oil production averaged an estimated 9.3 million barrels a day in 2017 and is estimated to have averaged 9.9 million b/d in December.

USA crude oil prices closed Wednesday at their highest levels in over three years. The narrowing price discount of WTI to Brent in the forecast is based on the assumption that current constraints on the capacity to transport crude oil from the Cushing, Oklahoma, storage hub to the US Gulf Coast will gradually lessen. Earlier in the day it reached a high of $69.37 a barrel. Between January and October 2017, U.S. production rose by 812,000 barrels per day, according to the U.S. Energy Information Administration (EIA).

As of December, Venezuela's crude oil production was roughly 1.8 MMBPD, the lowest level since February 2003, when most of Venezuela's oil production was shut-in during an oil workers' strike, Kallanish Energy learns.

As Asian demand for crude oil and petroleum products increase, supply considerations to transport crude oil to Asia are increasingly part of the price formation for global crude oil benchmarks.

The market was bolstered modestly by data showing a sharp decline in USA production last week. The price of West Texas Intermediate crude in NY was $US62.67 a barrel, on Tuesday, the highest in since December 2014. This year, USA crude oil production is seen averaging 10.3 million bpd in 2018, beating a record dating back to 1970.

The IEA warned that mostly due to US shale, total supply growth could exceed demand growth. That level would be the highest annual average on record, surpassing the previous record of 9.6 million b/d set in 1970. The agency increased its demand estimates for 2018 to 470,000 bpd from 410,000 bpd.

EIA expects OPEC crude oil output will rise by an additional 0.3 MMBPD in 2019 as crude oil production slowly returns to pre-agreement levels.

EIA said Alaska crude oil production is expected to remain flat at some 500,000 bpd in 2018 and 2019, with ongoing exploration and development drilling and the start of production from the 1H NEWS project in late 2017 and Greater Mooses Tooth in 2018 expected to keep production from declining in the state as it has in recent years.

Traders are watching the surplus on the five-year average in crude oil inventories for signs of balance. "Forecast dry natural gas production increases by an average of 2.6 Bcf/d in 2019". The nuclear share of generation was 20% in 2017 and is forecast to average 20% in 2018 and 19% in 2019.

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