The expanded role North America will play in the oil markets in coming years was confirmed Tuesday, when the U.S. Energy Information Administration released forecasts predicting that global oil supply will outstrip higher oil consumption, putting downward pressure on oil prices this year and into 2014. EIA said it expects oil markets to loosen in 2013 and next year as more supply comes online, while it left its world demand   forecast for 2013, basically unchanged in its January Short Term Energy Outlook. This edition includes the agency's first forecasts for 2014.
Projected world supply in the EIA's forecasts increases by 1.0 million barrels per day in 2013 and 1.7 million bpd in 2014, with most of the growth coming from outside of major oil bloc OPEC. Instead, "North America will account for much of this growth," the EIA said.
In addition, "North America accounts for about two-thirds of the projected growth in non-OPEC supply over the next two years because of continued production growth from U.S. tight oil formations and Canadian oil sands," the report said.
The agency expects U.S. total crude oil production to average 7.3 million barrels per day in 2013, up from the 7.1 million forecast in December's outlook. Production is then expected to jump to 7.9 million bpd in 2014, which would mark the highest annual average production level since 1988.
The EIA projects the Brent crude oil spot price will fall from an average of $112 per barrel in 2012 to annual averages of $105 per barrel and $99 per barrel in 2013 and 2014, respectively, "reflecting the increasing supply of liquid fuels by non-OPEC countries." After averaging $94 in 2012, West Texas Intermediate is expected to average $90 per barrel in 2013 before increasing to an average of $91 per barrel in 2014.
Falling crude prices should then translate to lower average national retail gasoline prices, the EIA said. It is forecasting national regular gasoline retail prices to average $3.44 per gallon and $3.34 per gallon in 2013 and 2014, respectively
It sees diesel fuel retail prices falling from $3.97 per gallon last year to an average of $3.87 in 2013 and then $3.78 in 2014.
Global oil consumption is projected to rise by 0.94 million bpd in 2013 to average 90.1 million bpd, EIA said. This is mostly unchanged from December's Short Term Energy Outlook, which forecast demand to grow by 0.96 million bpd next year to average 90 million bpd.
EIA then expects oil demand growth will pick up again in 2014 "due to a moderate recovery in global economic growth." It sees consumption reaching 91.5 million bpd in 2014, with Non-OECD Asia as the leading regional contributor to expected global demand growth.
The EIA stressed that the projections "do not assume any significant deterioration of the economic situation in the United States or the European Union (EU) next year."
On the supply side, the EIA report forecasts non-OPEC oil production to rise by 1.42 million barrels per day in 2013 to average 53.89 million bpd. This is an upward revision from the 53.79 million bpd forecast last month. Non-OPEC supply in 2014 is forecast to grow by 1.3 million bpd.
However, "assumptions about the mitigation of some of the current political impediments to production and the rapid evolution of the North American oil industry introduce considerable risks to the forecast," report said.
The EIA now expects that OPEC will continue to produce "at least" 30 million bpd over the next two years "to accommodate the projected increase in world oil consumption and to counterbalance supply disruptions."
However, OPEC is forecast to cut its supply by 0.6 million bpd in 2013 and stay flat through 2014. "Most of the decrease in 2013 comes from Saudi Arabia, which responds to non-OPEC growth and increasing production from some OPEC members, such as Iraq, Nigeria, and Angola," the EIA said.
OPEC surplus capacity, which remains overwhelmingly concentrated in Saudi Arabia, ended 2012 at 2.3 million barrels per day according to the EIA, and it forecast to grow to 3.1 million bpd in 2013 and 3.8 million in 2014. The estimate does not include available capacity in Iran that is currently offline due to sanctions.
On the natural gas front, the EIA expects natural gas consumption to average 69.7 billion cubic feet a day in 2013, and then average 69.4 Bcf a day in 2014.
"Forecasts for closer-to-normal temperatures in 2013 and 2014 will lead to increases in natural gas used for residential and commercial space heating," the EIA said, although it added that the increases will be offset by declines in the use of natural gas for power generation -- due to expectations of a cooler summer.
Natural gas spot prices averaged $3.34 per MMBtu at the Henry Hub in December, down $0.20 per MMBtu from the November average, EIA said. Prices are expected to average $3.74 per MMBtu in 2013, compared to the $3.68 expectation in December's report, while the price is now seen hitting $3.90 next year.
Source: EIA