Energize Weekly, January 29, 2020
Spot prices for oil and natural gas are expected to trend downward in 2020 as geopolitical risks abate for oil and U.S. natural gas production grows, according to the U.S. Energy Information Administration (EIA).
In 2019, Brent crude spot oil prices were spurred upward by events in the Middle East, including attacks on oil tankers in the Persian Gulf and Saudi Arabian oil facilities, boosting the price of a barrel of oil from $63 in September to $70 in January 2020, following the U.S. strike on an Iranian general in Iraq.
Nevertheless, the EIA said it expects that the spot price will average $65 a barrel for 2020 and $68 a barrel for 2021 and that West Texas Intermediate (WTI) crude, the U.S. benchmark, will average $59 a barrel in 2020 and $62 a barrel in 2021. WTI prices started the year at around $63 a barrel.
“EIA expects that crude oil prices will remain elevated in the first few months of 2020, reflecting a price premium on crude oil from recent geopolitical events,” the agency said. “However, this price premium will diminish in the first half of 2020, and market fundamentals will drive the crude oil price forecast in the second half of 2020 and in 2021.”
The agency is not forecasting any supply disruptions that would put upward pressure on prices.
U.S. natural gas prices are projected to be 9 percent lower in 2020 than they were in 2019 with an average price for the year of $2.33 per million British thermal units (BTU) at the Henry Hub.
The decline in prices will be the result of improved drilling efficiency and cost reductions, increased pipeline takeaway capacity from the Appalachian and Permian basins and more gas coming from wells primarily producing oil.
“This production growth outpaces the growth in domestic demand and exports,” the EIA said.
The EIA is projecting a record volume of U.S. dry natural gas production through 2020, from an estimated 92.0 billion cubic feet per day in 2019 to 94.7 billion cubic feet per day in 2020.
The prime sources of natural gas will be the Appalachian Basin in the Northeast, the Permian Basin in West Texas and New Mexico, and the Haynesville Shale in eastern Texas.
In 2021, the EIA is expecting gas prices to rise 9 percent as declining natural gas production puts pressure on prices.
