Annual average of 9.9 MBOPD predicted in 2018
Oil production by the U.S. is growing fast as U.S. shale producers continue to ramp up activity, according to the EIA’s most recent Short Term Energy Outlook. The EIA predicts that oil production in 2017 will average 9.3 MMBOPD, up from 8.9 MMBOPD last year. Growth will accelerate in 2018, with U.S. production averaging 9.9 MMBOPD in 2018. This will break the previous record for annual production, 9.6 MMBOPD in 1970, by a sizeable margin.
The EIA has revised its predicted oil prices downward from last month’s estimates. Currently, the agency expects WTI to average $49/bbl in 2017 and $50/bbl in 2018. This is $2/bbl and $4/bbl lower than previous estimates. The EIA expects Brent will average $2/bbl higher than WTI in 2017 and 2018.
Based on current contract values for October 2017 delivery, the market expects WTI will range between $36/bbl and $60/bbl with a 95% confidence level.
The large inventory surplus, which has weighed on prices over the past few years, is gradually decreasing. Since January 2017, surplus inventories have declined by about 80 million barrels, but still remain nearly 260 million barrels above the five-year average. Based on expected global supply and demand, inventories will fall by an average of 0.2 million barrels per day in 2017. However, further supply growth will mean inventories will grow by about 0.1 million barrels per day in 2018.
Natural gas rising slowly
Like oil, the EIA predicts that U.S. natural gas production will rise, though not quite as quickly. The Short Term Energy Outlook estimates that gas production will average 73.3 Bcf/d in 2017, up from 72.3 Bcf/d last year. Gas production will grow to 76.6 Bcf/d in 2018.
Henry Hub spot prices are predicted to be above 2016 levels, which, at $2.51/MMBTU, were the lowest seen since 1999. The EIA predicts that gas prices will average $3.10/MMBTU this year, rising to $3.40/MMBTU in 2018.
These higher gas prices will have consequences, though, with the natural gas share of total electricity generation falling from 34% in 2016 to 31% in 2017 and 2018.
Gas inventories will continue to decrease from highs seen last year. The EIA projects that gas inventories will be about 3,940 Bcf at the end of October. This level is 2% above the five-year average, but 2% below the record-high 2016 inventory at that point in the year.
