Monthly Brent spot prices will average $41/bbl during the second half of 2020 and rise to an average of $50/bbl in 2021, the US Energy Information Administration (EIA) said in its July Short-Term Energy Outlook.
The forecast is $4/bbl and $2/bbl higher, respectively, than its June STEO. The forecast of rising crude oil prices reflects EIA’s expectation of declines in global oil inventories during the second half of 2020 and through 2021.
Based on the mismatch between production and consumption of liquid fuels as a result of COVID-19 and associated mitigation efforts, EIA estimates that global oil inventories increased by almost 1.3 billion bbl from the start of 2020 through the end of May.
High inventory levels and surplus crude oil production capacity will limit upward price pressures in the coming months, but as inventories decline into 2021, those upward price pressures will increase, the EIA said.
EIA estimates global liquid fuels inventories rose at a rate of 6.7 million b/d in the first half of 2020 and expects they will decline at a rate of 3.3 million b/d in the second half of 2020 and then decline by a further 1.1 million b/d in 2021.
Although EIA’s forecast consumption of global liquid fuels of 101.1 million b/d in the fourth quarter of 2021 would still be less than during the same period of 2019, it would be 16.7 million b/d more than in the second quarter of 2020.
For the full year of 2020, EIA forecasts that consumption of global liquid fuels will average 92.9 million b/d, down 8.1 million b/d from 2019. EIA forecasts that both oil-consumption weighted GDP and global liquid fuels consumption will begin increasing in the third quarter of 2020 and will continue increasing through 2021.
EIA also expects global oil supply to rise in the coming quarters, however, it noted that voluntary production restraint from OPEC+ producers, along with the lingering effects of low oil prices on US tight oil production, will limit increases.
EIA estimates that non-OPEC production of petroleum and other liquid fuels fell by 5.4 million b/d in the second quarter of 2020 from the first quarter of the year. Almost 85% of these declines came from the three largest non-OPEC producers: the US, Russia, and Canada. For 2020 as a whole, non-OPEC production will decline by 2.2 million b/d from 2019 levels, the EIA forecasts.