EIA Oil Price Forecast

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EIA revises upwards its oil price forecasts for 2019-20

HOUSTON, May 8

05/08/2019

 

In its latest monthly Short-Term Energy Outlook, the US Energy Information Administration forecasts Brent spot prices will average $70/bbl in 2019 and $67/bbl in 2020, both about $5/bbl higher than in last month’s STEO. This compares with an average of $71/bbl in 2018. EIA’s higher Brent crude oil price forecast reflects tighter expected global oil market balances in mid-2019 and increasing supply disruption risks globally.

EIA also forecasts that global oil inventories will decline by 200,000 b/d in 2019 and then increase by 100,000 b/d in 2020. Global demand outpaces supply in 2019 in EIA’s forecast, but global liquid fuels supply then rises by 1.9 million b/d in 2020, with 1.5 million bbl of that growth coming from the US. EIA expects global oil demand to rise by 1.5 million b/d in 2020 in the forecast, up from expected growth of 1.4 million b/d in 2019.

Oil market fundamentals

Crude oil prices increased in April for the fourth consecutive month, reflecting a decline in global oil inventories during the year’s 4 months, more recently occurring amid a backdrop of heightened market perceptions of oil supply risk.

On Apr. 22, the US notified the eight countries that were initially granted sanction waivers allowing them to continue to import Iranian crude oil and condensate and that the waivers will not be extended past their May 2 expiration.

Although EIA forecasts Iranian crude oil production and exports to decline, crude oil supply from other countries—including some from the Organization of Petroleum Exporting Countries—are expected to mostly offset the lost Iranian barrels in the coming months. Increases in crude oil production in Saudi Arabia, the UAE, Kuwait, and Russia is expected to largely backfill the lower Iranian production, though these countries will likely wait until their June meeting to make any decisions regarding production increases.

EIA forecasts that OPEC’s crude oil production will average 30.3 million b/d in 2019, down 1.7 million b/d from 2018. In 2020, EIA expects OPEC crude oil production to fall 400,000 b/d to an average of 29.8 million b/d.

In addition, EIA expects recent crude oil price increases and expected higher oil prices through the forecast period to contribute to an increase in drilling activity in US. The expected increase in drilling activity led EIA to revise US crude oil production forecast to 13.4 million b/d in 2020, 300,000 b/d higher than in the April STEO.

These crude oil supply responses, however, will take several months to materialize completely, whereas the disruption from Iran is likely to occur within weeks. Given the expected delayed response of global crude oil production to current oil market fundamentals, EIA now expects average net global oil inventory withdrawals of about 400,000 b/d during this year’s second and third quarters.

Besides inventory withdrawals, the higher forecast prices in this STEO also reflects increased geopolitical risk. Unrest within Venezuela contributes to a highly uncertain situation that could immediately disrupt the remaining oil production there. Even if the ongoing unrest does not cause additional disruptions, EIA forecasts that Venezuela’s production will continue to see significant declines through 2020. Similarly, the civil unrest in Libya has increased the disruption risk significantly.

Crude price spread

Light, sweet crude oil prices in the US Midland hub, the area where crude oil produced from the Permian region is traded, developed a rare and significant discount to light, sour crude oil prices in the region in April.

The 5-day moving average of the differential between WTI Midland and West Texas Sour (WTS) crude oil prices neared a 4-year low of -$1.54/bbl on Apr. 4. The spread increased $1.65/bbl since then to settle at 11¢/bbl on May 2.

Natural gas

EIA expects strong growth in US natural gas production to put downward pressure on gas prices in 2019 and 2020.

The Henry Hub gas spot price averaged $2.64/MMbtu in April, down 31¢ from March. Prices fell as a result of warmer than-normal temperatures across much of US, which reduced the use of gas for space heating and contributed to above-average inventory injections during the month.

EIA forecasts Henry Hub gas spot prices to average $2.79/MMbtu in 2019, down 36¢ from 2018. The forecasted 2020 average Henry Hub spot price is $2.78/MMbtu.

EIA forecasts that dry gas production will average 90.3 bcfd in 2019, up 6.9 bcfd from 2018. EIA expects gas production will continue to rise in 2020 to an average of 92.2 bcfd.

Gas inventories ended March at 1.2 tcf, 16% lower than levels from a year earlier and 29% lower than the 5-year (2014–18) average. EIA forecasts that gas storage injections will outpace the previous 5-year average during the April-October injection season and that inventories will reach 3.7 tcf at the end of October, which would be 15% higher than October 2018 levels and about equal to the 5-year average.