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EIA Lowers 2020, 2021 Oil & Natural Gas Price Forecasts

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In a monthly report, the U.S. Energy Information Administration (“EIA”) reduced its oil and natural gas price forecasts for 2020 and 2021.

Let us drill down EIA’s most recent Short-Term Energy Outlook:


Price: The EIA lowered its 2020 view on WTI crude — the U.S. benchmark — by 23 cents to $38.76 a barrel, and pulled back its price forecast for next year by 35 cents to $44.72 a barrel. The reason for the downward adjustment to price realizations is the deceleration in the degree of recovery in oil consumption amid a spike in infections.

Production: The agency forecasts that U.S. crude oil output will fall by 800,000 barrels per day to 11.45 million barrels per day (MMbbl/d) in 2020. Last month, it expected an 870,000 barrel-per-day year-over-year decrease to 11.38MMbbl/d. The raised production outlook reflects stronger oil prices, prompting more companies to reactivate their coronavirus-hampered production. The likes of Zacks Rank #2 (Buy) Parsley Energy and Pioneer Natural Resources (PXD - Free Report) have already brought some previously shut-in production back online in America’s biggest oil field — Permian Basin in the western part of Texas and the south-eastern part of New Mexico.

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For 2021, it sees production to fall more than previously expected — decreasing 360,000 barrels per day to 11.09 MMbbl/d. In September, the EIA expected a 300,000-barrel-per-day-decline to 11.08MMbbl/d. The downward revision is a pointer to the fact that new drilling activity will be insufficient to compensate lower output from existing wells.

Demand: Meanwhile, the EIA has projected that domestic oil demand for 2020 is set to contract by 2.31MMbbl/d on coronavirus woes, more than its previous forecast of 2.12 MMbbl/d decline. But next year, crude consumption is expected to rebound by 1.74 MMbbl/d versus 1.64 MMbbl/d previously.

Natural Gas

Price: The EIA forecasts an average price of $2.07 per MMBtu over the course of 2020, down 4.2% from the September forecast. It expects 2021 prices to average $3.13 per MMBtu, 1.9% lower than the previous forecast. The reductions are due to storm-related LNG demand disruptions.

But as one can see, the commodity’s price is set for an uptick in 2021, primarily due to lower year-over-year domestic production that is expected to result in a tighter market going into 2021. The upward trend should aid gas-weighted producers like SilverBow Resources, Inc. (SBOW - Free Report) , Gulfport Energy Corporation (GPOR - Free Report) , Range Resources (RRC - Free Report) and Comstock Resources (CRK - Free Report) .

Production: U.S. dry natural gas production is forecast to fall from an all-time high of 93.06 billion cubic feet a day (Bcf/d) in 2019 to 90.64 Bcf/d in 2020. However, the latest October output projection for 2020 was up from the EIA's 89.88-Bcf/d forecast in September.

Analysts believe that the brake in skyrocketing shale oil production growth — tied to the crude price collapse — will limit associated gas output, thereby cutting the massive supply glut. As a proof of the supply drop, natural gas production continues to be curtailed, with domestic volumes receding more than 8% year over year.

For 2021, it sees production to fall more than previously expected — decreasing 3.83Bcf/d to 86.81Bcf/d. In September, the EIA expected a 3.29-Bcf/d decline to 86.59Bcf/d.

Demand: EIA projected domestic gas consumption to decrease to 83.66 Bcf/d this year from a record 85.20Bcf/d in 2019 due to warmer-than-expected winter 2019-2020 and a coronavirus-induced drop off in usage. However, the agency’s most-recent 2020 demand projection is up from EIA's 82.68-Bcf/d forecast for the year in its September report.

Next year, natural gas usage is expected to fall by 4.93 Bcf/d versus 3.54 Bcf/d previously. Per the EIA, higher natural prices in 2021 will reduce electric power demand.

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