WASHINGTON—Prices for both crude oil and natural gas appear likely to climb in the coming months, a U.S. Energy Information Administration report predicts. Although it says those ascents probably will be gradual, EIA’s Short Term Energy Outlook offers little reason to expect much reversal.

The STEO notes that slowing U.S. natural gas storage injections already are helping erode volumes that only a few months ago had pushed well beyond historical averages. Combine that with summer temperatures’ impact on power demand, and natural gas is likely to sell for almost a dollar more an MMBtu in the second half of this year than it did in the first, EIA assesses.

The agency adds that crude prices appear likely to edge closer to $90 a barrel during the latter part of the year. That price may drop a dollar or two as new barrels enter the market next year, but it could also go much higher in response to geopolitical developments, EIA writes.

Because the July STEO modeling and analysis were completed on July 3, it does not account for any effects associated with Hurricane Beryl, EIA notes.

Gaining Strength

The STEO’s outlook for natural gas opens by suggesting that the commodity’s prices will end 2024 on much firmer footing than they began it. “We expect that the Henry Hub natural gas spot price will average almost $2.90 MMBtu in the second half of this year, up from an average of about $2.10/MMBtu in the first half of 2024,” EIA clarifies. “Our July price forecast is similar to our June price forecast, which we increased from the prior month because of our revised forecast drop in U.S. natural gas production in 2024.”

That production drop is almost certainly attributable to many producers’ decision to throttle back exploration and production activity, the STEO relates. “We expect U.S. dry natural gas production to decrease slightly in 2024 because of less natural-gas-directed drilling and production curtailments in 1H24 due to low natural gas prices,” the report explains. “Less production this year has helped keep natural gas injections into storage so far this injection season (April-October) below the five-year average (2019-2023).”

The pace of natural gas storage injections slowed considerably in only a few months, EIA observes, with U.S. natural gas storage inventories’ surplus above the five-year average declining rapidly from 39% at the end of March, to 19% above it at the end of June.

“We expect natural gas storage injections to continue to fall below the five-year average this injection season because of relatively flat production through 2H24 and a summer increase in demand from the electric power sector,” EIA says. “As a result, the surplus of natural gas in storage will be further reduced, and we expect that inventories will end the summer injection season on Oct. 31 at almost 3.97 trillion cubic feet, still 6% above the five-year average and 4% more than inventories at the end of the 2023 injection season.”

U.S. storage inventories’ descent toward their five-year averages by the end of injection season and new demand from liquefied natural gas export projects coming on line in late 2024 through mid-2025 will push natural gas higher, it continues. “We expect natural gas prices to rise to an average of $3.30/MMBtu in 2025,” the STEO says. “Because of rising prices, we expect dry natural gas production to increase by 2% next year.”

The report also mentions the Appalachian Basin’s Mountain Valley Pipeline as another important factor, noting that it entered service in June. However, the report indicates other bottlenecks will continue to complicate its impact. “We do not expect the full 2 billion cubic feet a day of capacity to be utilized until next year because of constraints downstream of the interconnection with the Transcontinental Gas Pipeline in Pittsylvania County, Va.,” EIA states.

Approaching $90

According to the STEO, the June Brent average crude oil spot price remained flat from May at $82 a barrel, despite a dip to $75 a barrel on June 4, following an OPEC-plus announcement that it planned to gradually unwind its 2.2 million barrels a day of voluntary production cuts in the fourth quarter. Nevertheless, the report notes, prices had recovered to $88 by July 3 as the market considered current global inventories and OPEC-plus indications that the production moves remain subject to market conditions.

Looking ahead, the STEO forecasts a gradual, but unmistakable, ascent. “We expect oil prices will increase from an average of $82/bbl in June to $89/bbl for the remainder of 2024 and $91/bbl in 1Q25,” EIA relates. “Total oil inventories in the Organization for Economic Cooperation and Development remain near the lower bound of their recent five-year range (2019–2023). We expect that OPEC-plus will produce less crude oil than the group’s announced targets through the rest of the forecast period, which will reduce global oil inventories through mid-2025 and keep OECD inventories near the bottom of the range. Global oil inventories decreased by an estimated 600,000 bbl/d in 2Q24, and we expect they will decrease by 800,000 bbl/d on average from 3Q24 through 1Q25.”

EIA goes on to say that the market is likely to gradually resume moderate inventory builds in 2025 after the voluntary OPEC-plus supply cuts expire in 4Q24 and projected output from countries outside the cartel help offset global oil demand growth. But while the report predicts those developments will send next year’s average price lower, the effect should be decidedly modest.

“Beginning in 3Q25. we estimate that global oil inventories will increase at an average of 300,000 bbl/d and will increase by 400,000 bbl/d in 4Q25,” the STEO relates. “We forecast the Brent price will average $88/bbl in 2025, as growing inventories reduce oil prices in the second half of next year.”

International events cast a long shadow over the global oil market and can spike crude prices anytime, EIA acknowledges. “Uncertainty remains around heightened tensions in the Middle East, and an escalation in Houthi attacks on shipping vessels around the Red Sea,” the STEO describes. “These attacks have largely cut off the shipping channel for many oil shipments. Although these attacks have yet to directly reduce oil supply, the potential for further escalation and the lack of any potential resolution around the Red Sea attacks has added higher shipping costs and an ongoing risk premium to oil prices in the near term.”

Although OPEC-plus cuts are limiting world oil production growth, increases outside of OPEC-plus are significant, EIA calculates. “We expect that global production of petroleum and other liquid fuels will increase by 600,000 bbl/d in 2024,” EIA states. “We expect OPEC-plus liquid fuels production to decrease by 1.3 million bbl/d in 2024, while production outside of OPEC-plus increases by 1.9 million b/d, led by growth in the United States, Canada, Guyana and Brazil.”

And as OPEC-plus gradually phases out its cuts in 2025, the report adds, global liquid fuels production should climb 2.2 MMbbl/d in 2025, with OPEC-plus accounting for 700,000 bbl/d of the new production and non-OPEC countries contributing 1.4 MMbbl/d.

The STEO concludes its section on crude oil by forecasting that global consumption of liquid fuels will increase 1.1 MMbbl/d in 2024 and 1.8MM bbl/d in 2025. “Most of the expected demand growth is from non-OECD countries,” it says. “In 2024, consumption of liquid fuels by non-OECD countries increases by 1.2 MMbbl/d, offsetting a small decline in OECD, particularly in Europe and Japan. In 2025, non-OECD consumption rises by 1.4 MMbbl/d, mostly in China, where we expect consumption will increase by 400,000 bbl/d, and India, with a 300,000 bbl/d increase. We expect OECD consumption rises by 400,000 bbl/d, led by consumption growth in the United States.”