EIA lowers crude oil price forecast
Over the week starting November 24 and ending December 1, crude oil spot prices fell in response to expectations that the Omicron variant of COVID-19 could reduce global petroleum demand. During that week, the price of Brent crude oil fell $13 per barrel (b) to $70/b, and the price of West Texas Intermediate (WTI) fell $13/b to $65/b. In the December Short-Term Energy Outlook (STEO), we revised global demand in the first quarter of 2022 (1Q22) to reflect the potential decrease in demand as a result of responses to the Omicron variant. We also revised down our historical global petroleum demand due to data revisions, which is carried through the forecast. Although the historical data changed, the recent decrease in crude oil prices and the potential decreased demand caused by uncertainty around the Omicron variant are the primary factors driving down our forecast crude oil prices for December 2021 and for 1Q22.
We know relatively little about the Omicron variant’s potential effects on petroleum markets, which introduces significant uncertainty into our forecast. Our lower price forecast reflects the possibility that global oil demand could be lower than our forecast demand. In the December STEO, the price of Brent in December 2021 was revised down from the $81/b forecast in the November STEO to $71/b, and the price for 1Q22 was revised down from the $78/b forecast in the November STEO to $73/b (Figure 1).
Smaller expected inventory draws from December 2021 through February 2022 also contribute to the lower price forecast. We now expect global petroleum inventory draws from December through February will average 170,000 barrels per day (b/d), down from the November forecast of 420,000 b/d. The smaller forecast draws contribute to our lower crude oil price forecast, and we expect the price of Brent will average $72/b during this period, down from an average of $80/b in the November STEO.
We still expect relatively large annual inventory builds to put downward pressure on crude oil prices in 2022. In the December STEO, we forecast that global inventories will build by 480,000 b/d in 2022 (Figure 2). We expect the price of Brent will average $70/b in 2022, a slight decrease from our forecast of $72/b in the November STEO.
In our December STEO, we expect that global petroleum production will average 100.9 million b/d in 2022, a 5.3 million b/d (5.5%) increase compared with 2021. We forecast that non-OPEC petroleum production will increase by 3.0 million b/d in 2022, driven by rising production in the United States and Russia and, to a lesser extent, Brazil. We expect U.S. petroleum production will increase by 1.3 million b/d from 2021 to 20.1 million b/d in 2022, production in Russia will increase by 790,000 b/d to 11.6 million b/d in 2022, and production in Brazil will increase by 340,000 b/d to 4.1 million b/d in 2022. We forecast that petroleum production from OPEC will increase from 31.6 million b/d in 2021 to 33.9 million b/d in 2022. These production increases outpace the global forecast increase in demand, which we expect to rise from 96.9 million b/d in 2021 to 100.5 million b/d in 2022.
We made only limited adjustments to our global demand forecast to account for the uncertainty about the effects of the Omicron variant of COVID-19. How Omicron will affect petroleum markets and the broader economy is not yet clear; however, some travel restrictions have already been put in place. Based on preliminary estimates, we decreased our 1Q22 global consumption forecast by 100,000 b/d because of the Omicron variant and another 450,000 b/d because of historical revisions to consumption.
Actual demand may be notably less than our forecast, which would likely cause oil prices to be lower than our forecast. If demand remains close to our forecast, where Omicron only has limited effects, upward price pressures would likely be limited to 1Q22 because we expect stock builds will increase after 1Q22 and put downward pressure on crude oil prices.
The December STEO incorporates revisions to the global petroleum demand forecast that were driven by revisions to several years of historical liquid fuel consumption data, with the largest changes affecting 2019 and 2020. Global liquid fuels consumption was lowered by 810,000 b/d in 2019 and 610,000 b/d in 2020. Updates affected many countries and regions, but primarily Brazil, China, Russia, and other non-OECD areas.
The historical revisions resulted in relatively large changes to the global consumption forecast (compared with the downward revisions we made because of the Omicron variant). In our December STEO, we forecast that global consumption will average 96.9 million b/d in 2021 (down 620,000 b/d from the November STEO forecast) and 100.5 million b/d in 2022 (down 430,000 b/d from the November STEO forecast). The larger downward revisions in 2021 compared with 2022, however, resulted in higher consumption growth in 2022. In the December STEO, we forecast that global consumption will increase by 3.5 million b/d in 2022, an increase from our forecast growth of 3.3 million b/d in the November STEO. These historical revisions and the resulting changes in our demand forecast did not significantly contribute to the changes in our price forecast in the December STEO.
U.S. average regular gasoline and diesel prices decrease
The U.S. average regular gasoline retail price decreased nearly 4 cents to $3.34 per gallon on December 6, $1.19 higher than a year ago. The Midwest price decreased more than 6 cents to $3.11 per gallon, the East Coast price decreased more than 4 cents to $3.30 per gallon, the Rocky Mountain price decreased more than 3 cents to $3.47 per gallon, the West Coast price decreased nearly 2 cents to $4.18 per gallon, and the Gulf Coast price decreased more than 1 cent to $2.99 per gallon.
The U.S. average diesel fuel price decreased nearly 5 cents to $3.67 per gallon on December 6, $1.15 higher than a year ago. The Midwest price decreased nearly 7 cents to $3.54 per gallon, the Gulf Coast price decreased more than 5 cents to $3.40 per gallon, the Rocky Mountain price decreased more than 4 cents to $3.78 per gallon, the West Coast price decreased more than 3 cents to $4.42 per gallon, and the East Coast price decreased nearly 3 cents to $3.66 per gallon.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 0.6 million barrels last week to 73.3 million barrels as of December 3, 2021, 8.9 million barrels (10.9%) less than the five-year (2016-2020) average inventory levels for this same time of year. Gulf Coast and East Coast inventories increased by 0.9 million barrels and 0.4 million barrels, respectively. Midwest and Rocky Mountain/West Coast inventories decreased by 0.7 million barrels and 0.1 million barrels, respectively.
Residential heating oil prices decrease, propane prices unchanged
As of December 6, 2021, residential heating oil prices averaged $3.33 per gallon, more than 3 cents per gallon below last week’s price but nearly $1.04 per gallon higher than last year’s price at this time. Wholesale heating oil prices averaged almost $2.26 per gallon, nearly 24 cents per gallon below last week’s price but more than 75 cents per gallon above last year’s price.
Residential propane prices averaged almost $2.72 per gallon, unchanged from last week’s price but nearly 84 cents per gallon above last year’s price. Wholesale propane prices averaged more than $1.17 per gallon, 19 cents per gallon below last week’s price but 45 cents per gallon above last year’s price.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.