The EIA Raises Their Shale Production Forecast, Surprising Markets

March 10, 2021 12:00 PM
The EIA not only raised their forecast for production, but also for price
The API reported some dramatic inventories, but overall it was a push
The oil uptrend is still solidly intact
Energy Report

Energy Report


The Phil Flynn Energy Report 

Shale From The Dead

Maybe the U.S. shale industry isn’t dead after all. Even though shale companies have promised production restraint, the Energy Information Administration (EIA) surprised the market by raising their production forecast. That move caused oil to reverse its turnaround Tuesday. 

Myra P. Saefong of MarketWatch wrote that the EIA expects domestic oil production to average 11.15 million barrels per day (bpd) this year, up 1.2% from the previous view, and it lifted its 2022 forecast by 4.3% to 12.02 million bpd. That increase seems to be higher than what the trade was looking for and could be a result of producers that bought up on the Biden administration's crackdown on shale.

The EIA not only raised their forecast for production, but also for price. The EIA increased 2021 forecasts for the U.S. and global benchmark oil prices in a monthly report Tuesday, pointing out that the recent decision by major oil producers to extend existing supply cuts through April has provided support for prices in the near term. 

The EIA boosted its 2021 West Texas Intermediate crude price forecast to $57.24 per barrel, up 14% from the January forecast. It expects 2022 prices to average $54.75, up 6.2% from the previous forecast. For Brent crude, it also lifted this year's forecast by 14% to $60.67 and next year's by 6% to $58.51.

Oil did get some support from a report by the Organization for Economic Cooperation and Development (OECD) that said that the world economy is on track to be back to its pre-pandemic level by the middle of the year, thanks to the $1.9 trillion fiscal stimulus package that will add 3 percentage points to U.S. growth this year. 

They project that global GPD growth is now expected at 5.6% this year, more than 1 percentage point above the OECD’s December forecast, which can be attributed to the Covid-19 vaccine rollout and U.S. stimulus. 

The world economy is seen expanding by 4% in 2022. The U.S. economy would expand by 6.5% this year, China by 7.8%, and the eurozone by 3.9%. France and Italy, with GDPs up 5.9% and 4.1% this year respectively, are the only major economies whose prospects weren’t upgraded by the OECD when compared to its December forecast. 

France and Italy are also among the countries that have been slowest in rolling out proper vaccination campaigns. “Faster and more effective vaccination deployment across the world is critical” to keeping the momentum of the ongoing recovery, the OECD warns.

The API reported some dramatic inventories, but overall it was a push. What’s a person to profit if they gain in crude but get walloped in products? Refiners are still in lockdown mode which led to a 12.792 million-barrel crude build. Yet for products, we saw gasoline down 8.499 and distillates down 4.796. Pay attention to EIA data today.

The Biden administration has been silent on the OPEC+ cuts, but India is very upset at the way that OPEC is fleecing the global economy. Reuters confirmed the reports, stating:

India has asked state refiners to speed up the diversification of oil imports to gradually cut their dependence on the Middle East after OPEC+ decided last week to largely continue production cuts in April, two sources said. 

India, the world’s third-biggest oil importer and consumer, imports about 84% of its overall crude needs with over 60% of that coming from Middle Eastern countries, which are typically cheaper than those from the West.

Most of the OPEC+ producers, led by the world’s top exporter Saudi Arabia, last week decided to extend most output curbs into April. 

India, hit hard by the soaring oil prices, has urged producers to ease output cuts and help the global economic recovery. In response, the Saudi energy minister told India to dip into strategic reserves filled with cheaper oil bought last year. 

“We have asked companies to aggressively look for diversification. We cannot be held hostage to the arbitrary decision of Middle East producers. When they wanted to stabilize the market we stood by them,” said a government source. 

India had not cancelled any shipment of crude oil from the Middle East in 2020 when oil demand collapsed due to COVID-19, the source said.

Reuters also reported that on Wednesday, Saudi Arabia’s foreign minister said the kingdom would take deterrent action to protect its oil facilities, following attacks by Yemen’s Iran-aligned Houthi movement on energy sites. Tensions in the Middle East are on the rise: stay tuned.

The oil uptrend is still solidly intact. While weakness is in the short term, the rally should regain momentum. Risks are still tilted towards the upside.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.