International benchmark Brent crude oil front-month futures prices declined 24% to less than $35 per barrel and was the second largest daily price decline on record, according to the U.S. Energy Information Administration (EIA). The EIA released its short-term energy outlook for March after delaying the release by one day to account for the developments in the global oil market.
Prices declined following the March 6 meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) and its partner companies. The meeting ended without an agreement on product levels amid market expectations for declining global oil demand growth in the coming months.
Based on the outcome of the meeting, the EIA expects OPEC to target market share instead of a balanced global oil market. OPEC crude oil production is expected to rise to an average of 29.2 million barrels per day from April through December, up from an average of 28.7 million barrels per day in the first quarter of 2020. OPEC crude oil production is projected to increase to an average of 29.4 million barrels per day in 2021. The EIA’s March outlook includes OPEC production data for Ecuador, which has withdrawn from the organization as of the March 6 meeting. Ecuador’s production volume will now be included in non-OPEC data.
Global petroleum and liquid fuels consumption is projected to decline by 900,000 barrels per day to an average of 99.1 million barrels per day in the first quarter of 2020, from the same period in 2019. Global petroleum and liquid fuels demand is expected to rise by less than 400,000 barrels per day in 2020 and by 1.7 million barrels per day in 2021. Lower global oil demand growth for 2020 can be attributed to the reduced expectations for global economic growth and reduced expected travel globally because of the coronavirus disease, or COVID-19.
Global liquid fuels inventories will rise by an average of 1 million barrels per day in 2020 after falling by about 100,000 barrels per day in 2019. The inventories are projected to rise by a greater amount in the first half of 2020, increasing by 1.7 million barrels per day because of slow oil demand growth. A strengthening global economy and slower supply growth are expected to lead to a balanced market in the fourth quarter of 2020 and to global oil inventory draws in 2021. Global liquid fuels inventories are expected to fall by 400,000 barrels per day in 2021.
Brent crude oil prices are projected to fall to an average $43 a barrel in 2020, from $64 a barrel in 2019. Prices will rise from $37 a barrel in the second quarter of 2020 to $42 a barrel in the second half of the year. Brent prices will rise to an average of $55 per barrel in 2021 as a decline in inventories puts upward pressure on prices.
U.S. crude oil production is expected to rise by 800,000 barrels per day to an average of 13 million barrels per day in 2020. The production will fall to 12.7 million barrels per day in 2021 as a result of lower oil prices. The decrease would mark the first annual decline in U.S. crude oil production since 2016. Monthly U.S. crude oil production is expected to start falling in May, with production declining from 13.2 million barrels per day in May to 12.8 million barrels per day in December.
Because of the lower crude oil prices, U.S. retail prices for regular-grade gasoline are expected to fall to an average of $2.14 per gallon in 2020, from $2.60 per gallon in 2019. Retail gasoline prices are projected to decrease to a monthly average of $1.97 per gallon in April before rising to an average of $2.13 per gallon from June through August.
Meanwhile, U.S. dry natural gas production rose to a record level in 2019 when it averaged 92.2 billion cubic feet per day. Dry natural gas production is expected to rise 3% to 95.3 billion cubic feet per day in 2020. But the production level is expected to fall monthly through 2020, from 96.5 billion cubic feet per day in February to 92.3 billion cubic feet per day in December. Low natural gas prices are discouraging producers from drilling in the Appalachian regions, and in the Permian region, low oil prices reduce associated gas output from oil-directed wells.
In February, the Henry Hub natural gas spot price was an average of $1.91 per million British thermal units. Warmer-than-normal temperatures in February reduced demand for space heating and put downward pressure on prices. Prices are expected to rise in the second quarter of 2020 as U.S. natural gas production falls and natural gas use for power generation increases the demand for natural gas. Prices will be an average of $2.22 per million British thermal units in the third quarter of 2020. Henry Hub natural gas spot prices are expected to rise from an average of $2.11 per million British thermal units in 2020, to $2.51 per million British thermal units in 2021.