With US refineries expanding their capacity to process more domestic light oil in the coming years, the US Energy Information Administration on Tuesday said it expects refinery crude inputs to reach 15.52 million b/d this year and 15.61 million b/d in 2015, surging past the all-time high of 15.48 million b/d achieved in 2004.
Meanwhile, US crude production will average 8.39 million b/d in 2014, rising to 9.16 million b/d in 2015, on the strength of growth in the Bakken, Eagle Ford and Permian regions, the EIA said in its March Short-Term Energy Outlook. That would put the US close to its all-time average high of 9.6 million b/d, achieved in 1970.
The surge in domestic production will cause US crude imports to decline to 25% of total liquid fuels consumption, which would be the lowest level since 1971, the EIA added.
The ability of the US refining sector to absorb burgeoning domestic production, particularly from areas like the Bakken and Eagle Ford that are heavily slanted towards light, sweet crude, is likely to be a central focus of the debate over whether to lift US restrictions on crude oil exports.
Many producers have warned that the US will soon be oversupplied with light crude, as the bulk of the US refinery system is optimized to take heavier oil. Without the ability to export crude, US production could be shut in, producers say.
But some refiners, who are opposed to lifting the de facto ban on exports, say they are rapidly adjusting their infrastructure to process lighter slates and that fears of an upcoming crude glut in the US are overblown.
The US largely bans exports of crude under restrictions imposed by Congress in the wake of the 1973 Arab oil embargo. The Department of Commerce can issue permits for crude exports under certain prescribed conditions, but has generally only allowed small quantities to Canada.
GLOBAL DEMAND GROWTH MODERATES
In its report, the EIA said the US, along with Canada and Brazil, will account for much of the growth in non-OPEC oil production, which it projects will be 55.8 million b/d in 2014 and 57.28 million b/d in 2015.
Those figures are up from output of 54.01 million b/d in 2013, led largely by output growth in the Americas.
"EIA forecasts production from the United States and Canada to grow by a combined annual average of 1.3 million b/d in 2014 and 1.2 million b/d in 2015," the agency said. "Brazil's production is expected to increase by an annual average of [150,000] b/d over the next two years, attributable to new deepwater fields."
OPEC production, which averaged 30.0 million b/d in 2013, will fall by 500,000 b/d in 2014 and another 300,000 b/d in 2015, as some members, led by Saudi Arabia, reduce production to accommodate the non-OPEC supply growth, the EIA said.
The agency estimated that OPEC pumped 29.6 million b/d in February, as gains from Iraq and Angola more than offset a 200,000 b/d decline from cartel kingpin Saudi Arabia. Iraq produced 3.3 million b/d last month, up 200,000 b/d from January, while Angolan production climbed 150,000 b/d to 1.67 million b/d, the EIA said.
The EIA lowered its global petroleum demand forecasts slightly, by just 17,000 b/d from February's outlook, to 91.6 million b/d for 2014, and by 21,000 b/d to 92.97 million b/d for 2015.
Non-OECD consumption growth is expected to make up all of the global demand growth in 2014, and the bulk of growth in 2015.
OECD consumption is expected to fall in 2014, led by declines in Europe and Japan.
"Europe's consumption, which fell by 60,000 b/d in 2013, will decline by another 60,000 b/d in 2014 and then remain mostly flat in 2015," the EIA said.
In the US, the agency predicts liquid fuels demand will remain flat in 2014, averaging 18.89 million b/d, before rising slightly to 18.99 million b/d in 2015.
It added that the 2015 rise in consumption will be driven primarily by increased transportation demand for distillate fuel oil and industrial demand for hydrocarbon gas liquids.
WTI-BRENT DISCOUNT TO WIDEN
As for prices, the EIA noted that Brent crude averaged between $108/barrel and $112/b in February for the eighth consecutive month. The agency reiterated its previous months' predictions that the Brent crude price to weaken, due to non-OPEC supply growth outpacing global consumption.
The EIA projects Brent will average $104.92/b in 2014, falling to $100.92/b in 2015.
WTI, meanwhile, will average $95.33/b, falling to $89.75/b in 2015, the EIA said.
High US refinery runs in the Midwest following cold-weather disruptions in January strengthened WTI prices in February, as inventories at the Cushing, Oklahoma, storage hub shrunk to 32 million barrels, the lowest level since February 2012, the EIA noted.
WTI spot prices increased by $6/b during February to reach $101/b.
The discount of WTI crude oil to Brent decreased to $8/b in February after averaging more than $13/b over the previous three months, the EIA noted. The agency said it expects the discount to widen slightly over the next two years, "reflecting the economics of transporting and processing the growing production of light sweet crude oil in US and Canadian refineries."
Extreme cold weather also prompted the EIA to sharply raise its estimate for 2014 Henry Hub natural gas spot prices to $4.44/MMBtu, 27 cents above last month's estimate.
The agency also increased its 2014 marketed gas production estimate by 0.2 Bcf/d to 71.96 Bcf/d. The outlook said marketed production is expected to grow by an average rate of 2.5% in 2014 and 1.1% in 2015.
The EIA is the statistical arm of the US Department of Energy.
