The U.S. Energy Information Administration released its Short-term Energy Outlook this week and the report includes some very interesting adjustments to crude oil and natural gas production forecasts. Scroll to the bottom of this post to view EIA's Highlights and find a link to the full report on EIA.gov.
The first major adjustment was in crude oil production. The report places average 2017 U.S. crude oil production at 9.3 million barrels per day (mb/d) with December 2017 production at 9.9 mb/d. Production in February surged to 10.3 mb/d, up 230,000 from the prior month. EIA now forecasts 2018 U.S. crude oil production to average 10.7 mb/d in 2018 and 11.3 mb/d in 2019.
If EIA's forecast is realized, 2018 average daily production at 10.3 mb/d would set a record at a level not seen since 1970 when production averaged 9.6 mb/d.
EIA also forecasts record natural gas production in 2018 at 81.7 Billion cubic feet per day (Bcf/d), up an impressive 8.1 Bcf/d from 2017's average of 73.6 Bcf/d. If realized, the average production rate would not only be record high but would also comprise the highest annual average growth on record.
Perspective: Record natgas and crude oil production would certainly have the power to disrupt the current trends in fertilizers and farm diesel. On the fertilizer side, retail nutrient prices will be less responsive to those market fluctuations than will farm diesel. Refinery throughput has been solid, but total U.S. distillate supplies have some work to do before they could be considered oversupplied. We have found there to be roughly a 7 to 20 day lag between crude oil and heating oil futures and farm diesel prices.
fertilizer prices will take much longer to respond to lower feedstock prices as dealers must first chew through existing supplies before refilling. But if natural gas prices fall under the weight of bearish production fundamentals, eventually, the savings will pass from the fertilizer manufacturer to the end user. It does appear the cow is out of the barn on spring fertilizer prices and the best deals are likely in our rear view mirror. But fall prices could show a return to last fall's very low levels.
If that turns out to be the case, we will likely book aggressively for spring as we did in fall 2017, taking advantage of the seasonal price low. All in all, EIA's March Short-term Energy Outlook casts a bearish tone, which would be a welcome reprieve from the current uptrend. But the fundamentals will not likely weigh on fertilizer prices until late summer at the earliest.
Farm diesel could easily be another story, and if WTI crude prices slump later this spring, the timing might be just right for a quick top-off just after planting is complete in the Central Corn Belt.
Highlights from EIA's March Short-term Energy Outlook follow or click here to view the full report on eia.gov...
Global Liquid Fuels
- North Sea Brent crude oil spot prices averaged $65 per barrel (b) in February, a decrease of $4/b from the January level and the first month-over-month average decrease since June 2017. EIA forecasts Brent spot prices will average about $62/b in both 2018 and 2019 compared with an average of $54/b in 2017.
- EIA expects West Texas Intermediate (WTI) crude oil prices to average $4/b lower than Brent prices in both 2018 and 2019. NYMEX WTI contract values for May 2018 delivery traded during the five-day period ending March 1, 2018, suggest a range of $51/b to $76/b encompasses the market expectation for June 2018 WTI prices at the 95% confidence level.
- EIA estimates that U.S. crude oil production averaged 10.3 million barrels per day (b/d) in February, up 230,000 b/d from the January level, when there were some well freeze-offs in the Permian and Bakken. EIA has reported that total U.S. crude oil production averaged 9.3 million b/d in 2017, ending the year with production of 9.9 million b/d in December. EIA projects that U.S. crude oil production will average 10.7 million b/d in 2018, which would mark the highest annual average U.S. crude oil production level, surpassing the previous record of 9.6 million b/d set in 1970. EIA forecasts that 2019 crude oil production will average 11.3 million b/d.
- EIA estimates that inventories of global petroleum and other liquid fuels declined by 0.6 million b/d in 2017. In this forecast, global inventories grow by about 0.4 million b/d in 2018 and by another 0.3 million b/d in 2019.
- EIA estimates that U.S. dry natural gas production averaged 73.6 billion cubic feet per day (Bcf/d) in 2017. EIA forecasts that natural gas production will average 81.7 Bcf/d in 2018, establishing a new record. That level would be 8.1 Bcf/d higher than the 2017 level and the highest annual average growth on record. EIA expects natural gas production will also increase in 2019, with forecast growth of 1.0 Bcf/d.
- In February, the U.S. benchmark Henry Hub natural gas spot price averaged $2.66 per million British thermal units (MMBtu), down $1.03/MMBtu from January. Winter weather moderated in February after extremely cold temperatures in much of the country during the first half of January. U.S. heating degree days were an estimated 17% lower than the 10-year average for February, which contributed to lower consumption and prices.
- EIA expects natural gas prices to moderate in the coming months, based on a forecast of record natural gas production levels. EIA expects Henry Hub spot prices to average $2.72/MMBtu in March and $2.99/MMBtu for all of 2018. In 2019, EIA forecasts prices will average $3.07/MMBtu. NYMEX contract values for June 2018 delivery that traded during the five-day period ending March 1, 2018, suggest that a range of $2.16/MMBtu to $3.49/MMBtu encompasses the market expectation for June Henry Hub natural gas prices at the 95% confidence level.
Electricity, coal, renewables, and emissions
- EIA expects the share of U.S. total utility-scale electricity generation from natural gas-fired power plants to rise from 32% in 2017 to 34% in both 2018 and 2019. The forecast generation share from coal in both 2018 and 2019 averages 29%, down from 30% in 2017. The nuclear share of generation was 20% in 2017 and is forecast to average 20% in 2018 and 19% in 2019. Nonhydropower renewables provided slightly less than 10% of electricity generation in 2017 and are expected to provide 10% in 2018 and nearly 11% in 2019. The generation share of hydropower was over 7% in 2017 and is forecast to fall below 7% in both 2018 and 2019.
- EIA forecasts coal production to decline by almost 5% to 736 million short tons (MMst) in 2018 and then increase by 1% to 745 MMst in 2019. Lower expected global demand for U.S. coal exports (down 17% in 2018 and another 5% in 2019) and lower forecasts of coal use in the electric power sector (down 5% in 2018) contribute to the forecast of lower coal production.
- U.S. coal exports were 97 MMst in 2017, a 61% increase from the previous year, but they are expected to decrease in both 2018 and 2019. Exports of metallurgical coal, which are used in the steelmaking process, remain at 55 MMst in 2018 and decline to 54 MMst in 2019. Steam coal exports, which were an estimated 42 MMst in 2017, are expected to decline to 26 MMst and 23 MMst in 2018 and 2019, respectively.
- In 2017, EIA estimates that wind generated on average 697,000 megawatthours per day (MWh/d). EIA projects that generation from wind will rise to 722,000 MWh/d in 2018 and to 778,000 MWh/d in 2019. If factors such as precipitation and snowpack remain as forecast, conventional hydropower is projected to generate 747,000 MWh/d in 2019, which would make it the first year that wind generation exceeds hydropower generation.
- Total solar electricity generation averaged an estimated 211,000 MWh/d in 2017. EIA projects that it will reach 246,000 MWh/d in 2018 and 294,000 MWh/d in 2019.
- After declining by 0.6% in 2017, EIA projects that energy-related carbon dioxide (CO2) emissions will increase by 1.0% in 2018 and by another 0.8% in 2019. Energy-related CO2 emissions are sensitive to changes in weather, economic growth, and energy prices.