EIA expects lower crude oil inventories and higher prices following OPEC+, Saudi announcements

Kuwait Oil Company

The U.S. Energy Information Administration (EIA) has revised its projections for global oil production following OPEC+’s decision to extend crude oil production cuts until 2024.

Additionally, Saudi Arabia announced an additional voluntary oil production cut of 1 million barrels per day in July. The EIA’s June Short-Term Energy Outlook (STEO) predicts that the average Brent crude oil price will be $79 per barrel in the second half of 2023 and $84 per barrel in 2024. These figures represent an increase of $1 per barrel and $9 per barrel, respectively, compared to last month’s forecasts.

Despite the OPEC+ extension and Saudi Arabia’s extra cuts, the EIA anticipates overall growth in global oil production in 2023 and 2024. This growth will primarily be driven by increased production from non-OPEC countries. The EIA also expects that the consumption of liquid fuels, such as gasoline and jet fuel, will reach new record highs in 2023 and 2024, largely due to non-OECD countries, particularly China.

Joe DeCarolis, the EIA Administrator, stated that the demand for travel is expected to continue rising, leading to record consumption of petroleum products. However, given the high level of uncertainty in the petroleum market, the EIA will closely monitor developments and track supply and demand dynamics.

While U.S. crude oil production is projected to reach annual record highs in 2023 and 2024, the growth rate is slowing down. This slower growth could be attributed to factors such as diverting capital towards dividends and share buybacks instead of investing in new production, the impact of tighter labor markets and increased costs, and mounting pressure on oilfield supply chains.

The EIA estimates that U.S. dry natural gas production reached a record average of 104 billion cubic feet per day in April. It expects production to remain slightly below that level for the remainder of the year.

The decline in natural gas prices at the benchmark Henry Hub, which are approximately 70 percent lower than their peak last year, has led to decreased drilling for new gas-only wells. However, associated natural gas production will increase in the Permian Basin, offsetting declines in other regions.

Joe DeCarolis explains that increased crude oil production in the Permian Basin typically leads to a rise in natural gas production as well.

The EIA forecasts a 24 percent increase in electricity generated from solar power this summer compared to the previous year. This growth is primarily driven by the increased capacity of solar installations, as solar power has been the leading source of new electricity generation capacity so far in 2023.