United States Oil & Gas Report Q2 2013 - New Market Report

We have increased our oil production forecasts this quarter to reflect the rapid advances that exploration and production (E&P) in the US is making. Oil consumption growth will remain flat and, over the long term, stagnate. The industry is rapidly moving to natural gas feedstocks - which is reflected in our upwardly revised natural gas consumption forecast- and fuel economy initiatives for the autos sector are creating a structural shift in the consumption patterns of the country. Faster growth rates for production relative to consumption will negate gains for West Texas Intermediate prices. Infrastructure and solutions to transportation bottlenecks are going to be the determining variable, with the outcome of the Keystone XL a crucial determinant for the future price and supply/demand dynamics of the US energy market.

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The main trends and developments we highlight in the US oil and gas sector are:

* We have increased our forecasts for US liquids production this quarter starting from 2013 onwards, following an upward revision of our 2012 estimates. Our forecasts err on the side of caution, seeing a moderation in liquids production growth in the coming years, as base effects subside. We do note however risks to the upside with hydraulic fracturing applied to more and more formations and unlocking new resources, presenting an upside risk to our forecasts.
* According to our forecasts, the boom in US unconventional liquids production is set to combine with higher output from the Gulf of Mexico (GoM) to push total liquids supply (crude oil, natural gas liquids, other liquids and refinery gains) to 12.1mn barrels per day (b/d) in 2013, compared to our previous forecast of 11.7mn b/d. By 2016, we anticipate that total liquids output will have hit 13.3mn b/d, compared to our previous forecast of 12.6mn b/d.
* Oil demand growth is set to remain muted despite the slow recovery in the macro-economy (BMI's latest forecasts point to average real GDP growth of 2.3% in 2013). We forecast average annual growth of oil consumption to be 0.3% between 2013 and 2022. Demand growth will remain below trend over the course of the forecast period (to 2022) as the US energy market reduces its energy intensity.

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