Last updateThu, 04 Jun 2020 6pm

Major Shifts in Energy Supply and Demand Patterns Due to COVID-19

Reduced economic activity resulting from shelter-in-place restrictions due to COVID-19 drove significant near-term disruptions to energy markets in the month of April with U.S. petroleum demand falling nearly 27% to 14.2 million barrels per day (b/d), according to data released in the American Petroleum Institute’s April 2020 Monthly Statistical Report. Gasoline deliveries fell more than 31% in April to their lowest level since 1972, while jet fuel posted its largest monthly decline on record, falling nearly 56% to 0.6 million b/d. On a weekly basis, total U.S. petroleum demand rebounded by 1.6 million b/d as of May 1 after appearing to bottom out during the second week of April.

On the supply side, U.S. oil-targeted drilling fell a record 52% over the past two months as producers adjusted output to align with this historic decline in demand. Domestic oil production fell 0.9 million b/d in April to 12.0 million b/d, which combined with reductions in natural gas and other liquids output, amounted to the largest monthly decline in U.S. total liquids supply on record.

U.S. & UK Chemical Industries Begin Bilateral Trade Negotiations

The United States and United Kingdom entered formal trade negotiations on May 5. U.S.-UK chemicals trade totaled $5.3 billion in 2019. The chemical industry is the UK’s largest exporter of manufactured goods. A trade agreement that eliminates U.S. tariffs on chemical imports from the UK could save U.S. chemical manufacturers $76 million per year. Eliminating UK tariffs on chemical imports from the U.S. would reduce tariffs paid in the U.K by $84 million.

EIA Expects Lower Natural Gas Production in 2020

In its May 2020 Short-Term Energy Outlook, the U.S. Energy Information Administration (EIA) forecasts that U.S. marketed natural gas production will decrease by 2% in 2020 because of a weakening economic outlook from the impact of efforts to reduce the spread of COVID-19. EIA expects U.S. marketed natural gas production to average 97.1 billion cubic feet per day (cf/d) in 2020, down from 99.2 billion cf/d in 2019.

Before the economic contraction caused by mitigation efforts in response to COVID-19, EIA expected natural gas production would flatten in 2020 because of the oversupplied market created as natural gas production growth has outpaced demand growth. The U.S. set annual natural gas production records in 2018 and 2019, largely because of the increase in drilling in shale and tight oil formations. This increase in production led to higher volumes of natural gas in storage and a decrease in natural gas prices.

Falling Oil Prices Drag Down U.S. Business Investment

The dramatic decline in the price of oil has led to massive investment reductions by U.S. oil and gas producers. The Federal Reserve Bank of Dallas expects at least a 35% drop in such investment between the first and second quarters of 2020 in real (inflation-adjusted) terms, which will reduce nonresidential business fixed investment by 6% alone.

The outlook for capital expenditures in 2020 is highly uncertain but skewed to the downside.

EIA Revises Down 2020-21 U.S. Oil, Gas Production Forecasts

The U.S. Energy Information Administration (EIA) expects U.S. crude oil production to fall in 2020 and 2021 as efforts to mitigate the spread of COVID-19 continue to result in a steep drop in demand for petroleum products and crude oil prices. In its May Short-Term Energy Outlook, EIA forecasts that U.S. crude oil production will average 11.7 million barrels per day (b/d) in 2020 and 10.9 million b/d in 2021. These levels would be 500,000 b/d and 1.3 million b/d, respectively, lower than the 2019 average of 12.2 million b/d.

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