EIA forecasts crude oil prices will decline through 2023
Global oil consumption outpaced oil production for the six consecutive quarters ending with the fourth quarter of 2021 (4Q21), which has led to persistent withdrawals from global oil inventories and significant increases in crude oil prices. Crude oil production remained restrained as a result of curtailments by OPEC+ members, investment restraint from U.S. oil producers, and other supply disruptions. In 1Q22, however, we forecast that global oil markets will be balanced and that rising production will contribute to inventory builds in 2Q22 and continuing through 2023. The inventory draws from 3Q20 to 4Q21 put upward pressure on crude oil prices. We expect the forecast inventory builds from 2Q22 to 4Q23, conversely, to put downward pressure on crude oil prices. The price of Brent crude oil averaged $71 per barrel (b) in 2021, and we forecast that the price will fall from the current price of around $80/b to average $75/b in 2022 and $68/b in 2023 (Figure 1).
During 2021, the Brent price reached its highest monthly average, $84/b, in October and then fell to an average of $74/b in December. The price decline largely reflected concerns about how the Omicron variant and potential mitigation efforts may affect near-term oil demand. However, crude oil prices ended December at $77/b as concerns eased that Omicron would lead to significant declines in oil consumption. In addition, 0.3 million barrels per day (b/d) of crude oil production went offline in Libya, contributing to the increasing oil price.
We expect the Brent crude oil spot price will average $75/b in 2022. We forecast the Brent price will remain near current levels in 1Q22, averaging $79/b for the quarter. Oil markets are essentially balanced in 1Q22 in our forecast, and inventories decline slightly. From 2Q22 through 4Q22, however, we expect inventory builds will average 0.7 million b/d. We expect the inventory builds will put downward pressure on oil prices during this period, and we forecast that Brent crude oil prices will fall to an average of $71/b by 4Q22. In 2023, we expect that global inventories will build by an average of 0.6 million b/d, and we forecast that the Brent crude oil price will average $68/b (Figure 2).
At the January 2022 OPEC+ meeting, participants reaffirmed their decision to continue to increase production by 0.4 million b/d monthly, with future adjustments possible depending on market conditions. Our forecast assumes that OPEC member countries will not fully increase production in accordance with their targets in 2022. We expect that some countries will be unable to meet their new targets because of wide-ranging challenges to bring idled capacity back online, and other countries will limit increases to avoid large global imbalances between oil production and oil demand. OPEC crude oil production averaged 26.3 million b/d in 2021, and we forecast that OPEC crude oil production will increase by 2.5 million b/d to average 28.8 million b/d in 2022 and increase slightly to 28.9 million b/d in 2023.
U.S. crude oil production in 2021 averaged 1.1 million b/d lower than the annual record high of 12.3 million b/d set in 2019. We expect annual average U.S crude oil production will increase to 11.8 million b/d in 2022 and to 12.4 million b/d in 2023. Tight oil wells have steep declines in the early years of their production, requiring continuous drilling of new wells to maintain production rates. The increasing forecast production reflects oil prices that we expect will be sufficient to contribute to continued increases in the pace of upstream development activity that will more than offset decline rates.
We expect production will increase for most of 2022 as more new wells come online. For U.S. tight oil production, our models include a four- to six-month lag between a change in oil price and change in production. We expect the recent West Texas Intermediate (WTI) crude oil price, which averaged more than $70/b during most of the second half of 2021 (2H21), and average forecast WTI prices of $74/b during 1H22 will contribute to an increased number of active drilling rigs and production growth in the Lower 48 states (L48). We expect annual average L48 production of 9.6 million b/d for 2022, which is 3% lower than the 2019 record high of 9.9 million b/d.
We expect the WTI crude oil price will average $71/b in 2022. Although down from the current price, it is still sufficient for producers to realize positive cash flows in many areas, particularly the more productive areas of the Permian Basin. Most of L48 growth in the forecast comes from the Permian Basin.
In 2023, we expect that declining oil prices will contribute to slower rig additions, and production growth in the L48 will slow from 0.6 million b/d in 2022 to 0.5 million b/d in 2023. We forecast that L48 crude oil production will average 10.2 million b/d in 2023. Despite the slowing growth, we expect total crude oil production in the United States will average 12.4 million b/d in 2023, slightly surpassing the record high set in 2019 (Figure 3).
We forecast global oil consumption will grow by 3.6 million b/d in 2022 (reaching 100.5 million b/d) and by 1.8 million b/d in 2023 (reaching 102.3 million b/d). If realized, global liquid fuels consumption would set a new record in 2022.
We expect non-OECD countries, where economic growth tends to be more oil-intensive than in OECD countries, to lead the growth in demand for oil in 2022 and 2023. In our forecast, non-OECD oil consumption grows by 2.2 million b/d during 2022 and by 1.4 million b/d in 2023. Oil consumption in OECD countries grows by 1.4 million b/d in 2022 and by 0.3 million b/d in 2023.
Governments in non-OECD countries in the Asia Pacific and Latin America regions eased mobility and business activity restrictions during 2021 as an increasing share of the population was vaccinated. However, outbreaks of the Omicron variant in some Asia Pacific countries have led their governments to delay reopening plans or to extend current restrictions. The Middle East and Africa regions have been relatively slower to ease mobility restrictions than Europe and the United States. Outbreaks of COVID-19 infections and renewed restrictions on mobility and business activity still pose a significant downside risk in these regions.
U.S. average regular gasoline and diesel prices increase
The U.S. average regular gasoline retail price increased more than 1 cent to $3.30 per gallon on January 10, 98 cents higher than a year ago. The Midwest price increased by nearly 8 cents to $3.11 per gallon and the West Coast price increased more than 1 cent to $4.16 per gallon. The Gulf Coast price decreased more than 2 cents to $2.92 per gallon, the Rocky Mountain price decreased nearly 2 cents to $3.35 per gallon, and the East Coast price decreased more than 1 cent to $3.23 per gallon.
The U.S. average diesel fuel price increased more than 4 cents to $3.66 per gallon on January 10, 99 cents higher than a year ago. The Gulf Coast price increased nearly 6 cents to $3.38 per gallon, the West Coast and Midwest prices each increased nearly 5 cents to $4.42 and per gallon and $3.52 per gallon, respectively, and the East Coast price increased more than 4 cents to $3.65 per gallon. The Rocky Mountain price decreased more than 2 cents to $3.67 per gallon.
Propane/propylene inventories decline
U.S. propane/propylene stocks decreased by 3.4 million barrels last week to 62.4 million barrels as of January 7, 2022, 4.3 million barrels (6.5%) less than the five-year (2017-2021) average inventory levels for this same time of year. Gulf Coast inventories decreased by 2.7 million barrels, and Rocky Mountain/West Coast and Midwest inventories each decreased by 1.0 million barrels. East Coast inventories increased by 0.4 million barrels.
Residential heating fuel prices increase
As of January 10, 2022, residential heating oil prices averaged almost $3.46 per gallon, nearly 7 cents per gallon above last week’s price and more than 95 cents per gallon higher than last year’s price at this time. Wholesale heating oil prices averaged almost $2.63 per gallon, more than 12 cents per gallon above last week’s price and nearly 94 cents per gallo¬¬n above last year’s price.
Residential propane prices averaged almost $2.71 per gallon, nearly 1 cent per gallon above last week’s price and almost 63 cents per gallon above last year’s price. Wholesale propane prices averaged $1.29 per gallon, 1 cent per gallon below last week’s price but nearly 28 cents per gallon above last year’s price.
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