Release date: December 9, 2020 | Next release date: December 16, 2020
EIA forecasts global petroleum inventory draws and higher crude oil prices in 2021
In its December 2020 Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts that consumption of liquid fuels in 2021 will increase more than production globally, resulting in draws from global petroleum stocks (Figure 1). EIA forecasts that global oil demand will increase in 2021 as a result of expected worldwide gross domestic product (GDP) growth as the COVID-19 outbreak eases. The recent announcement by the Organization of the Petroleum Exporting Countries and partner countries (OPEC+) that they are reducing their planned January increase in crude oil production from their original agreement led EIA to lower its forecast for global oil production in 2021 compared with the November STEO, notably in the first quarter. With less forecast global production, EIA raised its forecast Brent crude oil price in 2021 by $2 per barrel (b) compared with the November STEO.
EIA forecasts that production of liquid fuels globally will increase by 3.2 million barrels per day (b/d) in 2021, and EIA expects most of that increase to occur among OPEC producers. EIA forecasts that the production of liquid fuels by OPEC will average 32.5 million b/d in 2021, up 1.9 million b/d (6%) from 2020. EIA’s forecast increase in OPEC production is almost entirely because of crude oil, which is forecast to increase from 25.6 million b/d in 2020 to 27.5 million b/d in 2021. EIA forecasts that OPEC crude oil production will reach an annual high of 28.7 million b/d in the fourth quarter of 2021, the largest OPEC production level since the fourth quarter of 2019.
Although EIA expects OPEC’s production of crude oil to increase in 2021, OPEC recently announced that it will limit monthly production increases to 500,000 b/d starting in January and it will meet monthly to assess market conditions. EIA expects that OPEC producers will comply with the announced production targets in early 2021 and, as a result, EIA lowered its 2021 OPEC crude oil production forecast by 1.0 million b/d in the December STEO from the November STEO. The revision is most significant for the first quarter of 2021, during which EIA now forecasts OPEC crude oil production will average 25.7 million b/d, 1.7 million b/d less than forecast in the November STEO. OPEC crude oil production is forecast to increase throughout the year, reaching 28.7 million b/d in the fourth quarter, down 400,000 b/d from the November STEO forecast.
As EIA’s forecast OPEC crude oil production increases during 2021, OPEC spare production capacity will decline. EIA forecasts that OPEC spare production capacity will be 7.5 million b/d in the fourth quarter of 2020, after which EIA forecasts it will decrease to 6.5 million b/d in the first quarter of 2021 and continue to fall, reaching 3.6 million b/d in the fourth quarter. The high levels of OPEC spare production capacity, especially in early 2021, will limit upward pressure on crude oil prices.
EIA expects that global consumption of liquid fuels in 2021 will average 98.2 million b/d, an increase of 5.8 million b/d (6.3%) from 2020 but 3.1 million b/d less than the 2019 level. On a quarterly basis, consumption is expected to increase from 96.3 million b/d in the first quarter of 2021 to 99.6 million b/d in the fourth quarter, the most since the fourth quarter of 2019. Global consumption estimates reflect GDP growth in 2021. Based on estimates from Oxford Economics, EIA forecasts that global oil-weighted GDP growth will average 4.8% in 2021 as the effects of the COVID-19 pandemic decrease.
The combined effect from less forecast OPEC supply and growth in the consumption of liquid fuels contributes to EIA’s expectation that global oil markets will be tighter in 2021 than previously forecast. In the December 2020 STEO, EIA forecasts an average implied global oil stock draw of 750,000 b/d in 2021, compared with a forecast draw of 410,000 b/d in the November STEO. Implied changes in the global petroleum inventories that EIA publishes are based on the difference between estimates of world production and world consumption. EIA forecasts a stock draw of 1.8 million b/d in the first quarter of 2021, followed by an average draw of 0.4 million b/d from the second through the fourth quarters.
EIA does not collect data on global petroleum inventory levels, but accurate data on inventories are available for countries in the Organization for Economic Cooperation and Development (OECD) and can indicate global trends. EIA forecasts that liquid fuels inventories in the OECD will fall to 2.9 billion barrels in the fourth quarter of 2021, down from 3.0 billion barrels in the fourth quarter of 2020 and 3.2 billion barrels in the second quarter of 2020 during the height of the pandemic. Although EIA forecasts that OECD inventories in the fourth quarter of 2021 will be lower than inventory levels seen in 2020, EIA forecasts it will be slightly higher than the inventory level at the end of 2019.
EIA expects global petroleum stock draws in 2021 will put upward pressure on crude oil prices. EIA forecasts that the price for Brent crude oil will average $49/b in 2021, up $7/b from 2020 and $2/b higher than the November STEO. The largest price revision in the STEO update occurs in the first quarter, when EIA expects Brent prices will average $47/b, up $5/b from the November STEO. EIA expects the price of Brent crude oil will reach an annual high of $50/b at the end of 2021 (Figure 2). However, given large existing oil inventories and spare oil production capacity, particularly early in 2021, EIA expects that upward pressures will be more limited than if the forecast stock draws were occurring absent these factors. In addition, the decision by OPEC+ to review production targets monthly introduces an additional uncertainty to the global oil market and oil price formation.
U.S. crude oil inventories increased
EIA’s Weekly Petroleum Status Report (WPSR) showed U.S. commercial crude oil inventories increased by 15.2 million barrels in the week ending December 4, the second-highest weekly increase in WPSR data going back to 1982. The large increase in crude oil inventories was caused by an increase in crude oil imports and a decrease in crude oil exports. The increase in crude oil inventories was concentrated in the Gulf Coast region, where inventories rose by 11.8 million barrels. Earlier this year, U.S. crude oil inventories rose by 19.2 million barrels in the week ending April 10 and increased by more than 15.0 million barrels the weeks ending April 3 and April 17.
U.S. average regular gasoline and diesel prices increase
The U.S. average regular gasoline retail price increased nearly 4 cents to $2.16 per gallon on December 7, 41 cents lower than the same time last year. The Midwest price increased nearly 6 cents to $2.01 per gallon, the Gulf Coast price increased nearly 5 cents to $1.84 per gallon, the East Coast Price increased more than 3 cents to $2.14 per gallon, and the West Coast price increased less than 1 cent, remaining virtually unchanged at $2.77 per gallon. The Rocky Mountain price decreased nearly 1 cent to $2.17 per gallon.
The U.S. average diesel fuel price increased more than 2 cents to $2.53 per gallon on December 7, 52 cents lower than a year ago. The East Coast and Midwest prices each increased more than 3 cents to $2.57 per gallon and $2.44 per gallon, respectively, the Gulf Coast price increased more than 2 cents to $2.28 per gallon, and the West Coast and Rocky Mountain prices each increased by less than 1 cent, remaining virtually unchanged at $3.04 per gallon and $2.54 per gallon, respectively.
Propane/propylene inventories decline
U.S. propane/propylene stocks decreased by 4.1 million barrels last week to 87.6 million barrels as of December 4, 2020, 3.4 million barrels (4.1%) greater than the five-year (2015-19) average inventory levels for this same time of year. Gulf Coast, East Coast, Rocky Mountain/West Coast inventories decreased by 3.1 million barrels, 0.7 million barrels, and 0.3 million barrels, respectively. Midwest inventories rose slightly, remaining virtually unchanged.
Residential heating fuel prices increase
As of December 7, 2020, residential heating oil prices averaged nearly $2.30 per gallon, more than 3 cents per gallon above last week’s price but almost 72 cents per gallon lower than last year’s price at this time. Wholesale heating oil prices averaged more than $1.50 per gallon, nearly 2 cents per gallon above last week’s price but more than 56 cents per gallon lower than last year.
Residential propane prices averaged more than $1.88 per gallon, more than 2 cents per gallon above last week’s price but 14 cents per gallon below last year’s price. Wholesale propane prices averaged more than $0.72 per gallon, almost 5 cents per gallon above last week’s price but more than 11 cents per gallon below last year’s price.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 12/07/20 | Week | Year | |
| Gasoline | 2.156 | 0.036 | -0.405 |
| Diesel | 2.526 | 0.024 | -0.523 |
| Heating Oil | 2.297 | 0.033 | -0.716 |
| Propane | 1.883 | 0.024 | -0.140 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 12/04/20 | Week | Year | |
| Crude oil | 46.26 | 0.73 | -12.94 |
| Gasoline | 1.269 | -0.013 | -0.378 |
| Heating oil | 1.403 | 0.022 | -0.549 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 12/04/20 | Week | Year | |
| Crude oil | 503.2 | 15.2 | 55.3 |
| Gasoline | 237.9 | 4.2 | 3.1 |
| Distillate | 151.1 | 5.2 | 27.5 |
| Propane | 87.637 | -4.081 | -0.462 |