Posted on 11/13/2014 4:20:18 AM PST by thackney
Selected portions of the report, full report at the link:
North Sea Brent crude oil spot prices fell from $95/barrel (bbl) on October 1 to $84/bbl at the end of the month. The causes included weakening outlooks for global economic and oil demand growth, the return to the market of previously disrupted Libyan crude oil production, and continued growth in U.S. tight oil production. Brent crude oil spot prices averaged $87/bbl in October, the first month Brent prices have averaged below $90/bbl since November 2010. EIA projects that Brent crude oil prices will average $83/bbl in 2015, $18/bbl lower than forecast in last month's STEO. There is significant uncertainty over the crude oil price forecast because of the range of potential supply responses from the Organization of the Petroleum Exporting Countries (OPEC), particularly Saudi Arabia, and U.S. tight oil producers to the new lower oil price environment.
Driven largely by falling crude oil prices, U.S. weekly regular gasoline retail prices averaged $2.99/gallon (gal) on November 3, the lowest level since December 20, 2010. U.S. regular gasoline retail prices are projected to continue to decline for the remainder of the year to an average of $2.80/gal in December, $0.33/gal lower than in last month's STEO. EIA expects U.S. regular gasoline retail prices, which averaged $3.51/gal in 2013, to average $3.39/gal in 2014 and $2.94/gal in 2015.
Total U.S. crude oil production averaged an estimated 8.9 million barrels per day (bbl/d) in October, and monthly average production is forecast to surpass 9.0 million bbl/d in December 2014. Projected total crude oil production averages 9.4 million bbl/d in 2015, a reduction of 0.1 million bbl/d from last month's STEO. If realized, the 2015 forecast would be the highest annual average crude oil production since 1972. Natural gas plant liquids production is expected to increase from an average of 2.6 million bbl/d in 2013 to 3.2 million bbl/d in 2015.
Natural gas working inventories on October 31 totaled 3.57 trillion cubic feet (Tcf), 0.24 Tcf (6%) below the level at the same time a year ago and 0.26 Tcf (7%) below the previous five-year average (2009-13). Despite the lower stocks at the start of this winter's heating season, EIA expects the Henry Hub natural gas spot price to average $3.97/million British thermal units (MMBtu) this winter compared with $4.53/MMBtu last winter. This price forecast reflects both lower expected heating demand and significantly higher natural gas production this winter.
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EIA made significant changes to its forecast global oil balance for this month's STEO. EIA expects that global oil markets will be looser than projected in last month's STEO, as global oil supply outpaces consumption by a larger amount, resulting in a global stock build of 0.4 million bbl/d in the fourth quarter of 2014 and a build of 0.4 million bbl/d in 2015. EIA's global supply forecast was revised upward by 0.2 million bbl/d to average 92.9 million bbl/d in 2015, mostly reflecting a smaller decline in Saudi Arabia's production compared with last month's forecast. The global demand forecast was revised downward by 0.2 million bbl/d to average 92.5 million bbl/d in 2015, based on weaker global economic growth prospects for next year.
Saudi Arabia's role in the oil market going forward is highly uncertain. Saudi Arabia has stated that it would rather maintain its export market share than cut production to keep prices higher. In the past, Saudi Arabia often played the role of the swing producer, cutting its production to accommodate supply growth elsewhere or increasing its output level to make up for a supply shortfall. EIA assumes that Saudi Arabia will continue to play some role as a swing producer, but perhaps to a lesser extent, as the country is sensitive to significant losses in market share. Saudi Arabia's production is still projected to decline in 2015 compared with this year, but by a smaller amount than previously expected. EIA projects that Saudi Arabia will cut production below its current level of 9.5 million bbl/d to avoid further downward pressure on oil prices amid high non-OPEC supply growth, but will maintain output above 9.0 million bbl/d through 2015.
EIA's projected global oil balance may be looser or tighter than expected depending on changes to Saudi Arabia's production level, Libya's supply outages, and global demand. Libya's crude oil production reached 1.0 million bbl/d in October 2014, its highest production level since early July 2013. However, Libya's production has since fallen because of new production outages. Intermittent supply outages in Libya will most likely persist as the country faces political instability and a deteriorated security environment in parts of the country.
EIA estimates that global consumption grew by 1.3 million bbl/d in 2013, averaging 90.5 million bbl/d for the year. EIA expects global consumption to grow by 0.9 million bbl/d in 2014 and 1.1 million bbl/d in 2015. Projected global oil-consumption-weighted real gross domestic product (GDP), which increased by an estimated 2.7% in 2013, grows by 2.7% and 3.2% in 2014 and 2015, respectively. Global consumption was revised downward by 0.2 million bbl/d in 2015, based on a 0.1% reduction to forecast global oil-consumption-weighted real GDP growth. Short-term elasticities of demand with respect to income are more powerful (negatively) than the positive effects on demand from lower prices.
Energy price forecasts are highly uncertain, and the current values of futures and options contracts suggest that prices could differ significantly from the forecast levels (Market Prices and Uncertainty Report). WTI futures contracts for February 2015 delivery, traded during the five-day period ending November 6, averaged $79/bbl. Implied volatility averaged 28%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in February 2015 at $63/bbl and $99/bbl, respectively. Last year at this time, WTI for February 2014 delivery averaged $95/bbl and implied volatility averaged 20%. The corresponding lower and upper limits of the 95% confidence interval were $80/bbl and $112/bbl.
Most all of the US exploration companies are announcing decreases in their exploration budgets beginning next year. At the same time, the smaller higher leveraged ones, will continue to ramp up production as they need to cash flow their debt and costs. So, over the near term, prices may drop more as production is above demand. Eventually production will drop as newly developed wells, mostly due to fraking in the US, will decline. Without an inventory of future prospects due to the decline in exploration, prices will snap back smartly at some point in the future. This could a few years to begin. I can see oil going sub 60pb before the turn. Meanwhile, natural gas will not be effected as much if at all. I am investing in this senario. All IMO of course.
I don't think they will ramp up for higher cost with lower returns. I think you will see the ones with too much debt selling assets.
Time to put gas in the motor home.
Yep.
OPEC meeting most crucial in years amid production cut debate
http://www.smh.com.au/business/opec-meeting-most-crucial-in-years-amid-production-cut-debate-20141113-11m3db.html
This month’s meeting of the Organisation of the Petroleum Exporting Countries (OPEC) on oil production could well be its most important in years, but speculation is growing that the biggest members won’t agree on how to curb surplus global output and revive oil prices.
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But there is more at play than just the “normal” price and production concerns this time.
Saudis have reasons better than shale to let prices fall
http://www.freerepublic.com/focus/f-news/3225105/posts
With oil, the Saudi regime always takes the long view. With security, however, its motivations are more immediate.
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