EIA Forecasts U.S. Crude Oil Production Higher in 2022 With OPEC Output to Fall

In the November STEO, EIA estimate for U.S. crude oil production will average 11.83 million barrels per day (b/d) in 2022. This is up from 11.79Mbpd in the prior forecast. The EIA forecasts 12.31 million b/d in 2023, down from 12.63mbpd which would set a record for most U.S. crude oil production in a year. The current record is 12.3mbpd, set in 2019. EIA forecast OPEC crude oil production will fall in November and December. On October 5, 2022, OPEC+ producers agreed to reduce crude oil production targets by 2.0 million barrels per day (b/d) from their previously stated targets beginning in November 2022.

STEO Oil Highlights

  • EIA forecast OPEC crude oil production will fall in November and December. Annual OPEC production averages 28.9 million barrels per day (b/d) in 2023, up by 0.3 million b/d from 2022.
  • EIA estimate for U.S. crude oil production will average 11.83 million barrels per day (b/d) in 2022. This is up from 11.79Mbpd in the prior forecast.
  • The EIA forecasts 12.31 million b/d in 2023, down from 12.63mbpd which would set a record for most U.S. crude oil production in a year.
  • Growth in OPEC and non-OPEC oil production—most notably production in the United States—keeps the Brent crude oil price in our forecast lower on an annual average basis in 2023 than in 2022. However, we expect the Brent crude oil price will begin rising in 2H23.
  • EIA Cuts Forecast For 2023 World Oil Demand Growth By 320,000 Bpd, Now Sees 1.16 Mln Bpd Yr-On-Yr Increase
  • EIA Raises Forecast For 2022 World Oil Demand Growth By 140,000 Bpd, Now Sees 2.26 Mln Bpd Yr-On-Yr Increase

Uncertainty in macroeconomic conditions could significantly affect energy markets in the forecast period. Based on the S&P Global macroeconomic model, we now expect U.S. GDP will fall slightly in 2023, which we forecast will contribute to a drop in total U.S. energy consumption next year.

  • EIA expect that Russia’s total liquids production will fall from an average of 10.9 million b/d in 3Q22 to 10.8 million b/d in 4Q22, before falling further to an average of 9.3 million b/d for all of 2023. This forecast is subject to significant uncertainty around the extent to which upcoming EU sanctions will impact trade flows and the ability for oil suppliers in Russia to find alternative shipping arrangements and buyers.
  • Expect global oil inventory levels to begin to fall again in early 2023, after increasing by an estimated 0.8 million b/d in 3Q22. We expect total global oil inventories will decline by 1.2 million b/d in 1Q23, after a forecast build of 0.2 million b/d in 4Q22. We forecast global oil inventories will fall by 0.3 million b/d in 2023.
  • he Brent crude oil spot price averaged $93 per barrel (b) in October. We expect the Brent price will average near that price through 1H23. T

Global Oil Production

EIA cites recent events contributing to increased uncertainty in the crude oil market and in our forecast include:

  • The impact of the recent OPEC decision to reduce crude oil production and whether there will be further production cuts in the future
  • The threat of increasing conflict following the outbreak of violent clashes in the Libyan capital of Tripoli
  • Uncertainty around the potential expiration of the current coordinated petroleum release from strategic reserves in November
  • The potential return to an Iran nuclear deal that could lift sanctions on the country and allow Iran’s crude oil exports into the market

Russia

The front-month to third-month crude oil futures price spread (1-3 spread) is a measure of market backwardation, a market environment that encourages crude oil to flow out of inventories and into the market. Backwardation occurs when crude oil futures contract prices in the near term are higher than crude oil prices in the long term.

In response to Russia’s full-scale invasion of Ukraine in the spring, the 1-3 spread for Brent increased from an average of $1/b in January to nearly $7/b in March. Following a decline in April, it returned to near $7/b levels in July. In August, the spread narrowed to $3/b, the narrowest spread since April. The decrease in backwardation in August suggests that the market call to draw oil from inventories has decreased since midsummer, indicating market conditions that are more balanced between supply and demand than earlier this year.

Forecast depends heavily on future production decisions by OPEC+, the responsiveness of U.S. tight oil production to oil prices, and the pace of oil demand growth, among other factors.

Top 5 Crude Oil Producing Countries Prior To Russian Invasion of Ukraine

Source: EIA

From The TradersCommunity Desk