HH Short Term Energy Outlook Shows Impact Of COVID-19 On Energy Sector

On May 12, the Energy Information Administration (EIA) released its latest Short Term Energy Outlook (STEO). This report reflects the first deep dive into how the energy demand collapse brought on by the COVID-19 pandemic is impacting energy market projections.

This month’s report includes a special caveat that is indicative of our present unusual circumstances:

“Although all market outlooks are subject to many risks, the May edition of EIA’s Short-Term Energy Outlook remains subject to heightened levels of uncertainty because the effects on energy markets of mitigation efforts related to the 2019 novel coronavirus disease (COVID-19) are still evolving.”

Here are some of the key summarized highlights from the EIA report, followed by my commentary on these projections. Some of the projections are far more optimistic than I would have expected.

Global liquid fuels

  • Brent crude oil prices will average $34/b in 2020, down from an average of $64/b in 2019. EIA expects prices will average $23/b during the second quarter of 2020 before increasing to $32/b during the second half of the year. Brent prices are expected to rise to an average of $48/b in 2021, as declining global oil inventories next year will put upward pressure on oil prices.
  • Global petroleum and liquid fuels demand will average 92.6 million b/d in 2020, a decrease of 8.1 million b/d from last year, before increasing by 7.0 million b/d in 2021.
  • Global liquid fuels inventories will grow by an average of 2.6 million b/d in 2020 after falling by 0.2 million b/d in 2019. EIA expects inventory builds will be largest in the first half of 2020, rising at a rate of 6.6 million b/d in the first quarter and increasing to builds of 11.5 million b/d in the second quarter as a result of widespread travel limitations and sharp reductions in economic activity.
  • EIA forecasts significant decreases in U.S. liquid fuels demand during the first half of 2020 as a result of COVID-19 travel restrictions and disruptions to business and economic activity. The largest impacts will occur in the second quarter of 2020 before gradually dissipating over the next 18 months.
  • U.S. crude oil production will average 11.7 million b/d in 2020, down 0.5 million b/d from 2019. In 2021, EIA expects U.S. crude oil production to decline further by 0.8 million b/d.
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