U.S. EIA sees 2022 crude oil prices below 2021 peaks
The U.S. Energy Information Administration expects for 2022 lower crude oil prices compared with the highs for 2021 seen in November and projects an average price for next year at about $70 per barrel.
The EIA said on Dec. 7 it projects that global oil production expansion will outpace demand growth in 2022, “pushing crude oil and petroleum product prices lower than in late 2021.”
Brent crude oil front-month future prices averaged $81 per barrel in November, but closed the month at $70 per barrel after prices contracted sharply in the last week of the month. The drop came after Thanksgiving holidays that saw the highest gasoline prices in about a decade.
The Nov. 23 announcement by the U.S. and other large oil consuming nations of a release of stategic crude oil reserves may have contributed to the decrease in futures at the end of November, the EIA said.
Separately, the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC countries will meet in early January to analyze markets. The group meets regularly to coordinate returning production to markets gradually as demand increases. Production was cut back in 2020 amid pandemic restrictions.
OPEC anticipates global oil demand will recover in the second half of 2022 to pre-pandemic levels and the world will consume 100 million barrels per day for the first time since 2019.
Yet uncertainties remain. A worsening of the COVID-19 pandemic could lead to a decline in energy demand.
“This is a very complicated environment for the entire energy sector,” said EIA Acting Administrator Steve Nalley.
The U.S. White House announced on Nov. 23, along with the administration of other nations like China, India, Japan, South Korea and the United Kingdom, a strategic oil reserves release.
”The Department of Energy will make available releases of 50 million barrels of oil from the Strategic Petroleum Reserve (SPR) to lower prices for Americans and address the mismatch between demand exiting the pandemic and supply,” it said.
Of that, 32 million barrels were to be released during the next months with plans to eventually return the volumes to the reserves. The other 18 million will be “an acceleration into the next several months of a sale of oil that Congress had previously authorized.”
The Infrastructure Investment and Jobs Act passed earlier in November included a provision “to draw down 87.6 million barrels of crude oil from the U.S. Strategic Petroleum Reserve in fiscal years 2028 through 2031,” according to the reserves release statement.
Decline in SPR inventories
With these sales and several other legislated drawdowns, SPR inventories could decline from 618 million barrels (as of Oct. 1) to about 314 million barrels by the start of the 2032 fiscal year, the lowest level since March 1983, the EIA said on Nov. 29.
The reserves compared with a U.S. estimated daily consumption of about 18 million barrels of crude oil per day, according to information last updated on Sept. 7 by the EIA.
The reserve was set up in the 1970s as a buffer against oil supply reductions and was designed to hold up to 714 million barrels of crude oil. Early in that decade some countries that were part of the OPEC announced an embargo on sales to the U.S., leading to fuel shortages.
OPEC´s increased production
Member countries of this organization of petroleum producing and exporting nations agreed in 2021 to gradually increase production during 2021-2022.
Members meet regularly to analyze and coordinate. The organization has 15 members with Saudi Arabia as the leading producer. Russia plays a dominant role among non-OPEC nations that coordinate policy with OPEC.
The 24th OPEC and non OPEC ministerial meeting has been scheduled for Jan. 4. The countries have been coordinating a gradual oil production return to markets as they currently have excess capacity.
The group agreed in July to bring back to markets 5.8 million barrels per day production by Sept. 2022 as global oil consumption returns to pre-pandemic levels with a reopening of the economy and post-pandemic economic growth.
World consumption may surpass the 100 million barrel per day mark in the third quarter of 2022 for the first time since 2019, according to OPEC projections, Reuters news agency reported on Dec. 13.
Refiners have said that jet fuel, the oil product most impacted by the pandemic restrictions, will see a demand recovery in the second half of 2022. Gasoline consumption and prices have already shown a clear recovery.
Market turmoil warning
The OPEC’s recently released World Oil Outlook for 2021 sees global energy demand expanding 28% by 2045, said Mohammad Sanusi Barkindo, OPEC Secretary General, in a speech on Dec. 8 in Houston.
Oil and gas combined are forecast to still supply over half of the world’s energy needs by 2045, with oil at around 28% and gas at just over 24%, he said.
“Investments of $11.8 trillion will be required between now and 2045 in the upstream, midstream and downstream oil sectors,” Barkindo added.
Yet investment in oil development has been on the decline, and contracted further in the pandemic, he said.
“Investments have not recovered since a global level of $700 billion was witnessed in 2014, and they were at only half this level last year,” Barkindo said.
“The current energy market turmoil seen across the world in recent months is perhaps an early insight into some of the issues we are dealing with, and what can occur if we do not see the bigger picture and the interwoven complexities,” he added.
By Renzo Pipoli