The Energy Information Administration is forecasting Brent crude oil spot prices to average $51 per barrel by the end of this year and $52 a barrel in 2018.
West Texas Intermediate (WTI) crude oil prices are expected to be $2 a barrel lower than Brent prices this year and next.
However, EIA admits that daily and monthly average prices could “vary significantly” from their forecast “because global economic developments and geopolitical events in the coming months have the potential to push oil prices higher or lower than the current Short-Term Energy Outlook (STEO) price forecast.”
For example, EIA’s forecast for the average WTI price this coming October is $48 a barrel, while options markets “indicate an expected range of WTI prices from $36 a barrel to $60 a barrel based on the recent prices of futures and options contracts for October 2017 delivery.”
U.S. crude oil production patterns in the lower 48 states’ onshore basins continue to vary by region, EIA noted, adding that quickly evolving trends in this sector can often affect both current prices and expectations for future prices. However, EIA’s latest report stated, “lasting price movements could be limited over the next year because some U.S. tight oil producers have used financial instruments to guarantee a price above $50 a barrel for their expected production.”
Crude oil prices reached their lowest year-to-date levels in late June, falling after EIA reported builds in total U.S. crude oil and petroleum products inventories that were above the five-year average during the two weeks ended June 2 and June 9. The build in total U.S. petroleum inventories for the week ended June 2 was the largest for any week since 2008. Increased Libyan and Nigerian production in June also put downward pressure on prices for the two-week period.
EIA forecasts total U.S. crude oil production to average 9.3 million barrels a day in 2017, up 0.5 million barrels a day from 2016.
In 2018, crude oil production is forecast to rise to an average of 9.9 million barrels a day. If that prediction holds true, 2018 production would be the highest annual average on record, EIA records show. And it would surpass the previous record of 9.6 million barrels per day set in 1970, the agency said. The 2018 forecast is 0.1 million barrels a day lower than in last month’s STEO because of lower forecast crude oil prices in late 2017 and in 2018.
The Organization of the Petroleum Exporting Countries’ (OPEC) crude oil production is expected to fall by 0.2 million barrels a day over the course of this year, as OPEC members limit production based on their November 2016 agreement. In May, this agreement was extended through the first quarter of next year. Uncertainty remains regarding the duration of, and adherence to, the current OPEC production cuts, which could influence prices in either direction. EIA’s forecast assumes a further extension of the agreement in 2018 but with lesser compliance. Without a further extension of the OPEC agreement, EIA’s report said it would expect larger inventory builds and lower prices next year than predicted in the current forecast.
The growth of global liquids consumption is expected to be 1.5 million barrels a day this year and 1.6 million barrels a day next year. In both years, most of this growth (about 1.2 million barrels per day annually) comes from countries outside of the Organization for Economic Cooperation and Development (OECD), with China and India expected to be the largest contributors to non-OECD liquid fuels consumption. Global oil inventories are forecast to be relatively unchanged in the second half of this year before returning to average inventory builds of 0.2 million barrels a day in 2018.