Energy Prospectus

Oil prices dropped by more than 1% to settle at $78.26 per barrel on Friday, but ending up where they began the week. < Lot of “noise” making the traders nervous.
> Comments from US central bank officials suggesting that interest rates could remain higher for longer, potentially curbing demand from major crude consumers. Dallas Fed Lorie Logan questioned the current monetary policy's effectiveness in curbing inflation, weighing on oil prices. Higher interest rates typically slow economic activity, which could weaken oil demand.
> China: On Thursday, data showed that crude oil imports in China increased in April, signaling improving demand in the world’s top crude importer.
> US data showed consumer confidence slipping to a six-month low due to expectations of rising prices.
> Middle East: Israel said it would proceed with plans to invade Rafah and other parts of Gaza as the latest round of peace negotiations in Egypt yielded no progress. < Biden's handling of this war is reminding voters of Afghanistan. Team Biden needs to shut up and let Israel finish the job.

EIA report on Wednesday:
> U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.4 million barrels from the previous week. At 459.5 million barrels, U.S. crude oil inventories are about 3% below the five year average for this time of year. Oil refineries are ramping up to produce more summer blend gasoline.
> Total motor gasoline inventories increased by 0.9 million barrels from last week and are about 2% below the five year average for this time of year. Both finished gasoline and blending components inventories increased last week.
> Distillate fuel inventories increased by 0.6 million barrels last week and are about 7% below the five year average for this time of year.

U.S. natural gas price up 12.8% in the last 30 days.
> Natural gas futures declined to $2.25/MMBtu on Friday, driven by conflicting factors in the LNG market.
> DEC24 closed at $3.44
> Concerns over delays arose from interruptions at the Golden Pass LNG project, while optimism grew among investors as Freeport initiated operations on a third train. Golden Pass LNG confirmed interruptions on the Texas export project could be coming after reported worker furloughs, citing ongoing negotiations between its engineering, procurement and construction (EPC) contractors.
> Meanwhile, gas flows to LNG export plant in Freeport is anticipated to reach a 16-week peak of 1.7 bcfd, a significant increase from the 1.3 bcfd average of the past week and the 0.4 bcfd recorded in April.
> Market Forces are rebalancing the U.S. natural gas market: Latest data showed US utilities added 79 billion cubic feet (bcf) of gas into storage last week, compared with market expectations of an 87 bcf increase. U.S. output fell by 2.3 billion cubic feet per day over the past six days, reaching a preliminary 16-week low of 95.5 bcfd.

EIA forecasts: Short Term Energy Outlook dated May 7, 2024

Global oil prices. We expect voluntary OPEC+ crude oil production cuts and ongoing geopolitical risks will keep the Brent crude oil spot price near $90 per barrel (b) for the remainder of 2024 before falling to an average of $85/b in 2025 as global oil production growth picks up.

Global oil production tables. This month we are publishing streamlined global oil data tables. These tables provide a more complete breakout of OPEC+ production data and provide a new breakout of world crude oil and other liquid fuels production.

U.S. retail gasoline prices. Across the United States, we forecast that retail gasoline prices will average near $3.70 per gallon from April through September, which is similar to prices during the same period last year. Refinery operations are a source of uncertainty for gasoline markets this summer. An upcoming Perspectives supplement looks in more depth at the effect refinery operations could have on retail gasoline prices.

Natural gas production. We expect U.S. dry natural gas production to fall by 2% from the first quarter of 2024 (1Q24) to 2Q24 as a result of low natural gas prices. We expect 1% less natural gas will be produced in the United States in 2024 than last year before production increases by 2% in 2025 to a record of almost 105 billion cubic feet per day (Bcf/d).

Natural gas consumption. U.S. natural gas consumption in our forecast is mostly unchanged in 2024 compared with last year, averaging 89 Bcf/d. We expect that less consumption in the industrial sector will offset increases in natural gas consumption in the electric power, residential, and commercial sectors.

Electricity generation. Solar supplies most of our forecast growth in U.S. electricity generation this year. We expect total U.S. electricity generation will grow by 3% (114 billion kilowatthours) in 2024, and we forecast generation from utility-scale solar will contribute almost 60% of that increase. Among other renewable sources, wind contributes 19% of 2024 U.S. electricity generation growth, and hydropower contributes 13%.

Coal markets. We have revised our estimate of U.S. coal exports in 2024 upwards by 4% compared with the April Short-Term Energy Outlook (STEO) due to more-than-expected metallurgical coal exports from the Appalachia region in February. We now expect U.S. coal exports in 2024 will be almost unchanged from 2023. However, we still expect coal production will decline by 14% in 2024 to about 500 million short tons and then fall by about 1% next year. But more coal exports in this STEO compared with last month’s forecast mean the decline is less than we had forecast last month; we raised our forecast for U.S. coal production from last month by 3% in 2024 and by 6% in 2025.

Standard Chartered has predicted that global oil markets will record the biggest stock draws in the first half of 2024 in May and June, implying we have entered a key period for oil fundamentals that will determine whether the market will tighten further or disappoint. StanChart says to watch global oil demand closely, predicting demand will hit an all-time high of 103.1 mb/d in May and increase further to 103.8 mb/d in June. The analysts have also predicted a y/y demand growth of 1.62 mb/d in May and 1.74 mb/d in June.

Meanwhile, OPEC+ is set to hold its next ministerial meeting on June 1 in Vienna. StanChart’s model shows that the organization has ample room to increase output by over 1 mb/d in Q3 without negatively impacting global inventories. However, analysts have pointed out that OPEC is unlikely to make any drastic moves when it meets in June because it won’t have full information on whether the expected H1 tightening was fully delivered. Given this backdrop, StanChart sees the global supply deficit exceeding 2 mb/d in August if production stays at current levels, noting the markets are yet to price in the potential deficit.