The May STEO Forecasts Good News on Predicted Pricing, But Concerning Predictions on Production

Published: May 13, 2020

The U.S. Energy Information Administration (“EIA”) released its Short-Term Energy Outlook (“STEO”) on May 12, 2020, but noted that it was subject to “heightened levels of uncertainty because the effects on energy markets of mitigation efforts related to the 2019 novel coronavirus disease (COVID-19) are still evolving.”

The May STEO elaborated on the extent of this uncertainty as follows:
“Reduced economic activity related to the COVID-19 pandemic has caused significant changes in energy supply and demand patterns. Crude oil prices, in particular, have fallen significantly since the beginning of 2020, largely driven by reduced oil demand because of COVID-19 mitigation efforts. Despite the April agreement between the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) to reduce production levels beyond the end of the STEO forecast period, crude oil prices have remained at some of their lowest levels in more than 20 years. Uncertainties persist across EIA’s outlook for other energy sources, including natural gas, electricity, coal, and renewables.”

Aside from uncertainty, what are the takeaways from the May STEO

The good news is that there are some positives:

There are some not-so-great aspects of the May STEO as well:

Despite the positive news about pricing, the forecasts on oil production are significant.  According to the May STEO:

If realized, the 2020 production decline would mark the first annual decline since 2016. U.S. crude oil production has not declined for two years in a row since the 17-year period of declines beginning in 1992 and running through 2008. Typically, price changes affect production after about a six-month lag. However, current market conditions will likely reduce this lag as many producers have already announced plans to reduce capital spending and drilling levels.

It is difficult to predict what oil production will look like in the future, especially given all of the uncertainty. Many factors, including unknown factors such as specific impacts of COVID-19 on the industry, will come into play. Stay tuned!

Stay informed. Sign up for our mailing lists.

Stay Informed

All of our news and resources are shared electronically. Select your preferred list(s) below.(Required)