Re-Posting EIA's Forecast For Crude Oil Prices In 2018

EIA has just released its monthly short-term energy outlook. The outlook on crude oil is worth re-posting:

• Brent crude oil prices averaged almost $58 per barrel in October, the highest monthly average since June 2015, as global oil stock have fallen by an estimated 400,000 barrels per day over the past six months. 
• EIA expects Brent prices to average $56 per barrel next year.
• Despite lower production in of the Gulf of Mexico during October, mainly attributed to Hurricane Nate, total U.S. crude oil production averaged 9.3 million barrels per day for the month. Our forecast continues to expect overall U.S. production to average 9.9 million barrels per day for all of 2018.

So, again, in case you missed it: Brent recently went to $58, getting everyone excited about a bull market in oil. But EIA forecasts Brent prices to average $56 in 2018. Correct me of I'm wrong, but $56 is two dollars less than $58. Other things to consider:

• unless the Brent - WTI spread flips, WTI will be trading in the range of $50 - $52 based on EIA's forecast for Brent -- $50 to $52
• OPEC forecasts US shale production to soar
• Saudi needs a minimum of $70-oil to balance its budget; $58 is a long, long way from $70

It's a fool's errand to forecast oil prices but assuming there is no geopolitical event in the Mideast that might upset the apple cart, I cannot argue with either the EIA or OPEC. 

US consumers should look forward to stable gasoline prices, and Saudi Arabia remains in deep doo-doo. 

From a Bloomberg article today, "OPEC fights back," dated November 7, 2017, one almost has to laugh. These were the two concluding paragraphs:

While prices are a bit better now, the coming years don’t look so great. OPEC is probably going to need to sustain its cuts for another year. Even if the cuts finish in late 2018, it’s looking at zero growth in demand for its crude until 2025 as shale takes all the new market share. 

OPEC’s World Oil Outlook 2017, published today, gives further encouragement. OPEC expects shale oil production to peak after 2025 and decline from about 2030. OPEC will then be required to increase its own output from about 33 million barrels a day in 2025 to 41.4 million in 2040, according to the report.

 

The Energy And Market Page, Part 2, T+290 -- November 7, 2017

EIA's short-term energy outlook released:

Oil Markets:

• Brent crude oil prices averaged almost $58 per barrel in October, the highest monthly average since June 2015, as global oil stock have fallen by an estimated 400,000 barrels per day over the past six months. 
• EIA expects Brent prices to average $56 per barrel next year.
• Despite lower production in of the Gulf of Mexico during October, mainly attributed to Hurricane Nate, total U.S. crude oil production averaged 9.3 million barrels per day for the month. Our forecast continues to expect overall U.S. production to average 9.9 million barrels per day for all of 2018.

Gasoline/Refined Products:

• U.S. regular gasoline retail prices averaged $2.51 per gallon in October.
• That price was down 14 cents per gallon compared with September, and we expect prices to continue trending down in a typical seasonal pattern through the end of 2017.
• Consumers could expect to see retail regular gasoline prices average $2.45 per gallon in 2018, just above the expected average retail price per gallon of $2.40 for all of 2017.

Natural Gas:

• We foresee a likely rebound in average household residential consumption of natural gas this winter, as we expect temperatures to be closer to average and therefore colder than last year.
• Following last year’s very warm winter, consumption could climb by 8% this winter.

Electricity:

• The share of utility-scale electricity generation for natural gas and coal continues to be evenly split at about 31% for each fuel source in 2017. 
• For natural gas, that’s down three percentage points from 2016, resulting largely from a combination of higher prices coupled with increased coal and renewables generation.

Coal:

• EIA revised its projections for coal exports up this month. We now expect to see U.S. coal exports to climb by about 37% from 2016 to 2017, as coal production continues to grow.

Renewables:

• The data indicate that conventional hydroelectricity in the United States will increase by roughly 13% in 2017 compared to 2016 because of heavy snow in the West last winter. At this time, we project hydroelectric generation will return in 2018 to levels closer to those seen in 2016.

*************************************

Cold front: Unfortunately I don't have the full graph, but it's enough for me. It appears the blue (cold) covers a much, much wider area than the red (warm). Don tells me it was 2 degrees below zero in Hettinger, ND, overnight.

This comes via Twitter:

SRE: on a day the market is down, SRE is up over a percent, hitting a new 52-week high. I assume it is because of these forecasts for a colder winter. SRE pays 2.77% even at this high share price. As late as December, 2013, SRE paid a quarterly dividend of 63 cents; it now pays a dividend of 82.3 cents per share and likely to raise that dividend in March, 2018.

Disclaimer: standard disclaimer in effect.

Kind Of Interesting -- EIA' s Latest Short Term Energy Outlook (STEO) -- September 12, 2017

Oil Markets:

• Industry watchers across the sector will have to grapple with uncertainty regarding the timeline for the return to normal operations for critical energy infrastructure, including refineries, in the coming weeks and months.
• U.S. crude oil production is forecast to average 9.3 million barrels per day in 2017 and 9.8 million barrels per day in 2018. Downward revisions to the forecast partly reflect the effects of Hurricane Harvey.
• EIA continues to expect growing oil output, with crude oil production forecast to reach an all-time high of 9.8 million barrels per day in 2018, topping the old 1970 record of 9.6 million barrels per day.

Gasoline/Refined Products:

• Following Harvey, the national average price of gasoline hit $2.68 a gallon, the highest in two years. EIA expects that to fall to an average of $2.61 a gallon for all of September and to $2.40 by October as, the energy supply system returns to more normal operations.
• We saw marked decreases in refinery operations following Hurricane Harvey, but operations are beginning to ramp up. EIA expects refinery runs in September to average 15.3 million barrels per day, well below the August level, but runs should increase into October.
• EIA expects that the loss of refined product production—because of reduced refinery operations—will be made up for through a combination of lower net exports and larger-than-normal inventory draws.

Natural Gas:

• Given NOAA’s forecast of a colder winter this year compared with last year, EIA expects natural gas prices to average almost $3.30 per million Btu this winter, up about 30 cents from last winter.

Electricity:

• Higher natural gas prices will likely contribute to a decrease in its share of total utility-scale electricity generation in 2017, falling by 3 percentage points compared to 2016. In contrast, coal will increase its share by 1 percentage point in 2017.
• EIA projects the electricity generation shares of natural gas and coal to remain largely unchanged in 2018 at averages of 31% and 32%, respectively.

Coal:

• U.S. coal production in 2018 is projected to reach its highest levels in three years because of expected growth in electric power sector demand. (The coal-powered car will start to impact coal production in the US.)

Renewables:

• Solar will continue to make gains in electricity generating capacity through 2018, with an expected 11 gigawatt increase from 2016’s 22 gigawatt capacity.

The Energy And Market Page, Part III, T+186 -- July 25, 2017

Market: smashes through to new records --

• S&P 500 closes at record high as earnings beat the Street

Economy, via Bloomberg --

• unemployment near a 16-year low (after two lost decades)
• US stocks reaching record highs
• consumers remain upbeat
• consumer confidence rises to 147.8, a 16-year high, from 143.9
• consumer expectations for the next six months gained to 103.3 from 99.6

Bloomberg tried to downplay these statistics, suggesting beneath these numbers are darkening clouds; and, of course they would. So anti-Trump, how else could they spin the story?

So, if you're a Hillary apologist, and have bought into the mainstream media story, and invested accordingly, you have missed one of the most spectacular equity rallies in history.

Other details from the economic report released today:

• respondents citing "good" business conditions rose to highest level since early 2001
• the labor differential widened to 16.1 percentage points, the highest since August, 2001 (very, very good)

 ******************************

Making America Great Again

From the EIA today:

In EIA’s latest Short-Term Energy Outlook (STEO), total U.S. crude oil production is forecast to average 9.3 million barrels per day (b/d) in 2017, up 0.5 million b/d from 2016.

In 2018, EIA expects crude oil production to reach an average of 9.9 million b/d, which would surpass the previous record of 9.6 million b/d set in 1970.

EIA forecasts that most of the growth in U.S. crude oil production through the end of 2018 will come from tight rock formations within the Permian region in Texas and from the Federal Gulf of Mexico. In the July STEO, the Permian region is expected to produce 2.9 million b/d of crude oil by the end of 2018, about 0.5 million b/d more than the estimated June 2017 production level, representing nearly 30% of total U.S. crude oil production in 2018. The Permian region covers 53 million acres in the Permian Basin of western Texas and southeastern New Mexico. --- EIA

*******************************

How Amazon Has Raised The Bar

Every so often Lego introduces a high-demand set that quickly sells out. When that happens, one can then find the same item on eBay selling for about 2x Lego's advertised price. Lego will eventually catch up with demand -- it usually takes about two months -- and Lego keeps its same original price. [As a rule of thumb: each piece averages out to 10 cents/piece; is a set has 1,000 pieces, it will cost $100.]

Lego recently came out with such an item; high demand and Lego quickly sold out. I bookmarked the site and checked periodically.

Yesterday, the item was available. I immediately ordered one set for my daughter (Lego set limit to two sets per order; we sometimes buy two sets on these special items, but for now, in this case, we just ordered one).

After placing my order, I called Lego to confirm that the order had gone through (it's a long story; unimportant).

"Josh" took my phone call. Great conversation. He, too, had been waiting for the Apollo Saturn 5 to become available again; he also noted that it had just come available but by company rules he is not allowed to order on the company computer; he said he will have to wait until he got home.

He said he was 42 years old and still loved Lego products. I no longer have any Lego collection; it's all gone to our younger daughter.

But I digress.

As noted, I ordered about 4:30 p.m. Central Time, Monday afternoon. Today, a robotic e-mail alerted me that the product had already shipped. It would be coming by FedEx -- historically a high-cost mailing option -- and would arrive at our daughter's address on Thursday -- with free shipping.

Without Amazon pushing retailers, I seriously doubt we would see retailers expediting these orders -- for all practical purposes, the Lego shipment is a two-day affair. And free. Even Amazon requires a $99 annual Prime membership for 2-day, "free" shipping.

The on-line price was identical to what I would pay in a local Lego store (if available) and half what it would have cost on eBay had I been too impatient to wait.

The "limit 2 per order" will disappear over time, I believe. Regardless, these high-demand sets are available for a year or so and then production ceases, I believe. It probably varies.

[I just checked Amazon and eBay: the Apollo Saturn V is available about twice the advertised Lego price. It will be interesting to see how fast these prices come down, especially over at eBay.]

Update, 2:49 p.m. Central Time, July 27, 2017:

This was ordered late Monday afternoon, US Central Time; it arrived about noon, US Central Time, Thursday, by FedEx -- free shipping. With free shipping and a free gift worth about $25, Lego is practically giving this item away. LOL.