January 20, 2022

The World Stock Markets Tips & Targets, News, Views & Updates

The World Stock Markets Tips & Targets, News, Views & Updates

US EIA sees global oil stock builds ahead on rising OPEC, US supply

Highlights

US set to pass pre-pandemic output by 2023

EIA says OPEC holds plenty of spare capacity

US gasoline prices to remain a challenge for Biden

The US Energy Information Administration boosted its 2022 oil price outlook Jan. 11 by nearly $5/b from last month but sees those levels falling throughout the year as global supply outpaces demand as soon as the second quarter.

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EIA expects global oil demand to increase 3.62 million b/d year on year in 2022, up 70,000 b/d from last month’s Short-Term Energy Outlook. That would put demand back above 2019 levels for the first time since the pandemic, by about 260,000 b/d.

“We expect that as crude oil production increases, inventories will begin to replenish and help push prices lower for gasoline, jet fuel, and other products in the short term,” said EIA Acting Administrator Steve Nalley.

Global oil demand growth would then slow to 1.75 million b/d in 2023, EIA predicted.

EIA increased its outlook for 2022 crude oil futures by $4.90/b from last month to $71.32/b for WTI and $74.95/b for Brent. It sees oil prices falling in 2023 to an average of $63.50/b for WTI and $67.50/b for Brent.

US gasoline prices will likely remain a pressure point for the Biden administration ahead of the US mid-term elections in November, given EIA’s expectation that they will average above $3.06/gal for 2022. That’s 18 cents/gal higher than last month’s outlook.

But the fuel prices will trend downward throughout the year, falling below $3/gal on a monthly basis by September, EIA said. The latest outlook has regular-grade gasoline prices close out the year at $2.77/gal in December.

“Global supply chain disruptions have also likely exacerbated inflationary price effects across all sectors in recent months,” EIA said. “How central banks respond to inflation may affect economic growth and oil demand during the forecast period.”

US supply set to recover

EIA predicts US crude production will top pre-pandemic levels in 2023 to hit an all-time high of 12.41 million b/d. It sees US output increasing 640,000 b/d in 2022 to 11.8 million b/d. US supply averaged 12.3 million b/d in 2019.

“Production growth reflects oil prices that we expect will be sufficient to lead to continued increases in upstream development activity, which we forecast will proceed at a pace that will more than offset decline rates,” the report said.

Elsewhere in North America, EIA’s forecast assumes no new upstream projects come online in Canada in 2022 or 2023, leaving oil sands producers to target smaller incremental expansions or other optimizations of existing projects. “Some growth will also come from removing the bottlenecks from pipeline capacity,” the report said.

Mexico sees some of the largest declines in the EIA forecast, after its crude and liquid fuel output averaged 1.9 million b/d, nearly unchanged from 2019 and 2020 levels. EIA expects its output to fall 100,000 b/d in 2023, reflecting financial constraints at state-owned Pemex and continued large declines in mature fields that will not be offset by new growth in foreign-operated fields.

OPEC outlook

EIA predicts OPEC surplus capacity will be more than sufficient to meet higher-than-expected demand even as the producer group continues raising its monthly quotas. It estimates surplus OPEC capacity at 3.9 million b/d in both 2022 and 2023, down from 6 million b/d in 2021 but well above 2.2 million b/d seen in 2010-19, and that is before any additional Iranian exports if the US decides to ease those sanctions.

S&P Global Platts Analytics expects the global oil market to be oversupplied in the first quarter but estimates OPEC+ sustainable spare production capacity will shrink to 800,000 b/d by June if it maintains its monthly quota rises, creating “an uncomfortably thin market buffer in the second half of the year.”

OPEC+ production increased in December but again fell short of its quotas, according to the latest S&P Global Platts survey Jan. 11. Fourteen of 18 members with quotas fell short of those targets, including largest producer Russia.

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