STEO And Tight Oil Update, August 2023

A guest post by D Coyne

The EIA's Short-Term Energy Outlook (STEO) was published in early August. The chart below estimates World C+C by using the STEO forecast combined with past data from the EIA on World Output.

The EIA's Short-Term Energy Outlook (STEO) was revised higher in August compared to July. World C+C output is expected to decrease in the second and third quarters of 2023 and then increase over the next 5 quarters. Annual average World C+C output increases by about 1000 kb/d in 2023 to 81743 kb/d and then to 82967 kb/d in 2024, less than 50 kb/d below the centered 12-month average peak in 2018. This month's World C+C estimates are about 300 kb/d higher than last month for 2023 and 400 kb/d higher for 2024 due to the revisions in the STEO forecast this month.

The chart above considers World liquids output minus C+C output, aka, non-crude liquids such as NGL, biofuels, refinery gain, and other liquids and also presents US non-crude liquids output. The chart includes historical output up to 2023Q1 and uses the STEO forecast for future quarters through 2024Q4. About 79% of the World non-crude liquids increase in output from 2020 to 2024 is expected to come from the US.

The chart above assumes that at the end of 2018 that World petroleum stocks were large enough to provide 90 days of 2018Q4 consumption and that after that the OPEC MOMR and EIA STEO supply and demand estimates from World liquids are correct, for 2023Q3 to 2024Q4 the OPEC crude forecast from the EIA's STEO is used for both the MOMR and STEO estimates because MOMR does not make a forecast after 2023Q2 for OPEC crude output. OPEC expects World petroleum stocks to fall after 2023Q2 based on their World Supply and demand estimates for petroleum, the EIA expects a much smaller decrease based on their estimates.

The chart above uses the same methodology as the previous chart, but the data is presented in millions of barrels of petroleum (both crude oil and petroleum products). Note the significant difference between the STEO and MOMR estimates, especially after 2023Q2. If the EIA is correct, we might see relatively stable oil prices and if OPEC's estimate is correct, we would expect a significant increase in the price of crude oil.

The chart above used Paul Pukite's Oil Shock Model and my best guess about future oil output. It is assumed that there will be a significant increase in the number of EVs sold worldwide, which will reduce demand for oil below the level of supply by 2033 and lead to falling oil prices. The only change from last month is the inclusion of the STEO estimates for 2023 and 2024 on the chart based on the August STEO. The 2024 World C+C output forecast by the STEO is similar to 2025 output in my model, the peak is in 2027 at 83.7 Mb/d.

The US tight oil model above is unchanged from last month. Annual average US tight oil output peaks in 2027 at about 9600 kb/d.

The chart above shows the most recent EIA tight oil estimate with data from April 2017 to June 2023. Two trend lines are presented, with April 2020 to June 2023 having an annual rate of increase of 536 kb/d and the earlier April 2017 to March 2020 period having an annual rate of increase of 1365 kb/d.

The chart above shows the annual rate of increase in US and Permian basin tight oil output from March 2021 to June 2023, over this period, all of the increase in US tight oil output came from the Permian basin. The annual rate of increase is much less than last month's estimate (625 kb/d for US tight oil) due to revisions in the EIA's most recent official tight oil estimate.

The chart above presents two alternative estimates for US tight oil and compares them with my tight oil model (DC Model) and the official EIA tight oil estimate (EIA tight). The first uses the EIA's C+C estimate for the lower 48 states minus Gulf of Mexico output (L48 minus GOM) and subtracts 1788 kb/d, which is roughly the average difference between L48 minus GOM and tight oil output from March 2021 to Sept 2022 (1788 kb/d). The second uses the EIA's Drilling Productivity Report (DPR) and subtracts the average difference between the DPR and official tight oil estimate from March 2021 to September 2022 (770 kb/d).

It is possible that the most recent tight oil estimate from the EIA may be a bit too low (it was revised significantly lower since the previous month.)

The chart above covers the period from October 2021 to May 2023 and compares the average of three tight oil estimates, the official tight oil estimate and my two estimates based on the Petroleum Supply Monthly (PSM) and DPR data, with my tight oil model. The trend for the average of the three tight oil estimates is an annual increase of 645 kb/d over this period and the model tracks the estimates fairly well.

The tight oil model has an annual rate of increase of 300 kb/d from July 2023 to December 2024, less than half the rate of increase from October 2021 to May 2023, from December 2024 to the peak in August 2027, the annual rate of increase in US tight oil output for the DC Model is about 180 kb/d.

The Tight Oil-STEO estimate shown above subtracts 1788 kb/d from the L48 minus GOM estimate from the most recent STEO; my tight oil model is shown for comparison. The STEO expects flat tight oil output from Sept 2023 to March 2024, with a fairly rapid increase after April 2024 until December 2024, assuming that conventional onshore L48 output remains relatively stable.

The only change in this chart from last month is updated EIA data estimates from the latest official tight oil estimate; the models are unchanged.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.