Federal energy outlook forecasts a rebound, but not until 2022

COVID-19, hurricanes and a colder winter forecast are among the major factors affecting the latest short-term energy outlook from the Energy Information Administration.

The October outlook released on Oct. 13, indicated recovery from the COVID-19 pandemic continues to create heightened levels of uncertainty.

“We’re seeing higher prices, and a lot of the factors the energy market is dealing with now are still the result of the COVID-19 pandemic,” said Timothy Hess, EIA’s product manager for short-term energy outlook. “We saw a drop in the demand and price of energy, but over the past year demand has increased pretty steadily as the economy has recovered. Supply has been a little slow to catch up with that demand.”

An overly active and destructive 2021 hurricane season, which still has many Gulf Coast oil producers offline, also factors heavily into this equation.

“Refinery inputs fell significantly during Hurricane Ida,” Hess said. “Refineries typically do their maintenance in October, so it tends to be one of the lowest months of the year. Because of this, and as a result of Ida, we lowered our outlook for Gulf of Mexico production. We do expect production to increase as we reach the end of the year.”

Brent crude oil prices averaged $74 per barrel in September, an increase of $4 from August and up $34 per barrel compared to September 2020. Early October prices show an average of more than $80 per barrel.

In addition, steady draws on global oil inventories averaged 1.9 million barrels per day during the first three quarters of 2021.

“We do expect crude oil and diesel prices to be higher in the fourth quarter than they were early in the year,” Hess said. “But we expect that to come down in early 2022. Our outlook is that supply will start to catch up on demand.”

Conditions this winter could also throw a wrench into EIA’s energy outlook, Hess added.

“We’re really keeping an eye on weather this year,” he said. “What we’re incorporating in our outlook is a winter that is a little colder than last year, but not substantially. If the weather ends up being colder than we expect, that would likely affect energy across the board.” LL