Crude oil and natural gas prices are off to a hot start this year, driven by strengthening global demand, tighter supplies, and regulatory uncertainty.
But some Wall Street institutions and the U.S. Energy Information Administration (EIA) are split on whether this momentum will be sustained throughout 2022.
In its January Short-Term Energy Outlook (STEO), the EIA projected that crude prices would subside in 2022 and 2023, citing growing global inventory builds and supply outpacing demand.
The EIA estimates that supply withdrawals averaged 1.4 million barrels per day (bpd) worldwide last year amid renewed demand. The EIA anticipates that consumption growth will ease as inventories are poised to increase.
STEO authors project that global crude production will increase by 5.5 million bpd this year, led by the United States, Russia, and the Organization of the Petroleum Exporting Countries (OPEC). They will represent 84 percent of the growth.
Global petroleum consumption will swell by 3.6 million bpd, while international stockpiles will advance by approximately 500,000 bpd this year, the EIA estimates.
Overall, West Texas Intermediate (WTI) crude oil prices will average $71.32 per barrel this year and $63.50 per barrel in 2023. Brent, the international benchmark for oil prices, is expected to average $75 per barrel in 2022 and $68 per barrel in the following year.
“We expect global demand for petroleum products to return to and surpass pre-pandemic levels this year, but crude oil production grows at a faster rate in our forecasts,” EIA Acting Administrator Steve Nalley said in a statement. “We expect that as crude oil production increases, inventories will begin to replenish and help push prices lower for gasoline, jet fuel, and other products in the short term.”
This is vastly different from other estimates on Wall Street in recent weeks.
In November 2021, JPMorgan Chase forecast that the price of a barrel of oil could soar to $125 in 2022 and $150 in 2023. The financial titan listed “the impacts of underinvestment” as one of the chief reasons for this call. It stated that it will prove challenging for OPEC and its allies (OPEC+) to avoid.
In its recent Global Commodities Research report, JPMorgan Chase noted that demand has been holding steady despite the many variables across the global economy.
“With signs of demand withstanding the Omicron variant, low stocks, and increasing market vulnerability to supply disruptions, we see the need for more OPEC+ barrels,” analysts wrote.
“As economies reopen and learn to live with an endemic COVID, the impact of the Omicron variant will likely be only limited on the expected rebound in 1Q demand growth.”
Analysts alluded to several key producing markets that could become problematic for global energy markets.
Libya is warning that crude output could slide by 200,000 bpd as the country repairs a damaged pipeline. Ecuador declared force majeure last month on crude exports and production contracts amid heavy rainfall that initiated preventative shutdowns. Nigeria’s reliability has also come into question because of “pipeline sabotage combined with unplanned maintenance and other technical problems.”
Will the Energy Industry Boost Output?
With crude prices hovering at their best levels since 2014, many strategists have been befuddled by the lack of exploration and production efforts. But this could change in the coming year.
Rystad Energy, an independent energy research and data analytics firm, forecasts that global oil and gas investments will rise 4.3 percent annually to $628 billion, buoyed by a 14 percent increase in upstream gas and liquefied natural gas investments in 2022.
But uncertainty over President Joe Biden’s regulatory and broader green agenda has weighed on the industry, despite the spike in energy commodity prices, says Claudio Galimberti, senior vice president of analysis at Rystad Energy.
“Investment in oil and gas is not what it would be with $85 a barrel five years ago,” he told The Epoch Times. “Five years ago, you would see much more activity because there would be much less uncertainty from a regulatory perspective.”
According to Baker Hughes, the total oil rig count stands at 588. This includes 481 rigs from crude-focused operators and 107 rigs from natural gas-focused activity.
In its Commodities Oil Drilling Report, JPMorgan Chase noted that the present level of crude activity “is already outpacing our average expectation for rigs (435) during the month.”
The EIA has shared the same sentiment regarding production. Writing in its STEO, the EIA projects that domestic crude output will climb nine consecutive quarters, swelling to 11.8 million bpd in 2022 and 12.4 million bpd in 2023.
“Production growth reflects oil prices that we expect will be sufficient to lead to continued increases in upstream development activity, which we forecast will proceed at a pace that will more than offset decline rates,” the EIA stated.
More supplies could be coming online over the next year or two as producers are expanding well completions in the Permian Basin of west Texas and New Mexico, the nation’s premier shale oil field.
These conditions could offer some relief at the pump by the third quarter, Galimberti said.
Today, the national average price of gasoline stands at about $3.30 per gallon. But prices could come down 5 to 10 percent later this year, he said.
The EIA reported on Jan. 12 that domestic crude inventories declined 4.553 million barrels, greater than the market estimate of a 1.904-barrel drawdown. Industry observers purport that the significant data point from the weekly U.S. energy snapshot was gasoline stockpiles soaring 7.961 million barrels, highlighting weaker-than-expected demand.
“Gasoline demand was weaker-than-expected and still below pre-pandemic levels, and if this becomes a trend, oil won’t be able to continue to push higher,” OANDA analyst Edward Moya said in a note.
Moreover, natural gas inventories decreased by 179 billion cubic feet in the week ending Jan. 7, slightly more than the median expectation of 173 billion cubic feet, the EIA reported in its weekly storage report.
Galimberti believes natural gas could hold firm at $4 in the first quarter, but the energy commodity’s impressive start to 2022 could ease once producers take advantage of the bull market.
February WTI crude futures fell $0.51, or 0.62 percent, to $82.13 per barrel on the New York Mercantile Exchange. February natural gas futures plunged $0.278, or 6.45 percent, to $4.048 per million British thermal units. February gasoline futures slipped $0.018, or 0.75 percent, to $2.3723 per gallon. February heating oil futures were flat at $2.5893 per gallon.