US EIA cuts forecast for 2023 global liquids production, demand

The US Energy Information Administration on Oct. 12 cut its forecast for 2023 global petroleum liquids production by 600,000 b/d to 100.7 million b/d, and cut its global consumption forecast by 500,000 b/d to 101.03 million b/d, citing lower GDP growth.

In its Short-Term Energy Outlook, the EIA said OPEC crude production would average 28.6 million b/d over the fourth quarter of 2022 and the first quarter of 2023, down from 29.6 million b/d in September, following the cartel's announced 2 million b/d production cut Oct. 5.

However, the EIA sees OPEC crude output rising by the middle of the year, bringing the 2023 average to 28.85 million b/d, up slightly from 28.58 million b/d in 2022.

The EIA expects US crude production to average 12.4 million b/d in 2023, up from 11.7 million b/d in 2022.

Global demand was reduced lower "in response to a lower forecast for global GDP from Oxford Economics," the EIA said in its report.

The EIA report echoes a similar demand downgrade by OPEC on Oct. 12. The producer bloc now sees consumption this year below 100 million b/d for the first time since August 2021, stating: "Risks are skewed to the downside with slowing growth in the global economy, if continued, likely leading to lower oil demand in the months to come."

Based on the drop in expected consumption, the EIA lowered its 2023 Brent price forecast to $94.58/b from its prior forecast of $96.91/b, and cut its 2023 WTI price forecast to $88.58/b from $90.91/b.

Heating demand to boost retail prices

However, while the EIA lifted its 2022 US retail gasoline price forecast to $4.03/b from $3.98/b, it kept its 2023 forecasts for retail gasoline and diesel largely unchanged. The EIA forecast US retail diesel prices to average $4.29/b in 2023, down from $4.97/b in 2022, saying low inventories and geopolitical risks could help drive up heating oil costs this winter.

"We forecast that inventories will remain below the five-year average for heating oil and propane throughout this winter, driven by reductions in US refining capacity and strong heating-related demand," the EIA said in its 2022-2023 Winter Fuels Outlook, which was also released Oct. 12.

"We expect that the 4% of US households that use heating oil as the primary space heating fuel will spend about $2,350 on average this winter, up 27% from last winter," the EIA said.

Not only are retail heating oil prices higher, but consumption should rise this winter.

"We forecast that the average US household will consume about 520 gallons of heating oil this winter, up 9% compared with last winter, which reflects NOAA's forecast of a colder winter," the EIA said.

Heating oil is primarily consumed on the US Atlantic Coast.

"About 18% of households in this region use heating oil as a primary space heating fuel, down from 25% a decade ago," the EIA said.

Distillate supply concerns

A drop in natural gas deliveries from Russia could also contribute to lower distillate fuel supplies, the EIA said.

"With the impending implementation of the European Union's ban on Russia's petroleum products in February 2023, the potential for increased fuel switching from natural gas to distillate presents a greater source of price uncertainty than in previous years," the EIA said.

Russia was also a leading supplier of diesel to Europe prior its invasion of Ukraine.

With USAC refinery capacity tightening, distillate supply options are limited.

"Although a number of supply options are available in the Northeast (including pipeline shipments from other US regions, imports from international markets, and coastwise compliant shipments from other US ports), low international inventories suggest that the potential for imports from international markets may be less than in previous years," the EIA said. "Periods of severe cold weather could also lead to more withdrawals from inventories and higher distillate prices, which could put additional pressure on already low distillate inventories."

The NYMEX ULSD crack spread to WTI has soared this year on global diesel tightness. The front-month crack was around $80/b during midday New York trading Oct. 12, compared to $22.90/b for the RBOB crack spread.