In the June 2018 update of its Short-Term Energy Outlook (STEO), EIA forecasts Brent crude oil prices will average $71 per barrel (b) in 2018 and $68/b in 2019. The updated 2019 forecast price is $2/b higher than in the May STEO. Brent crude oil spot prices averaged $77/b in May, an increase of $5/b from April and the highest monthly average price since November 2014. West Texas Intermediate (WTI) prices are forecast to average almost $7/b lower than Brent prices in 2018 and $6/b lower in 2019.
Crude oil prices have reached high levels as global oil inventories have generally declined from January 2017 through April 2018. Even though the 2019 oil price forecast is higher than it was in the May STEO, EIA expects oil prices to decline in the coming months because global oil inventories are expected to rise slightly during the second half of 2018 and in 2019.
Expected inventory growth results from forecast oil supply growth outpacing forecast oil demand growth in 2019. EIA currently forecasts global petroleum and other liquids inventories will increase by 210,000 barrels per day (b/d) next year, a factor that, all else being equal, typically puts downward pressure on oil prices.
Most of the growth in global oil production in the coming months is expected to come from the United States. EIA projects that U.S. crude oil production will average 10.8 million b/d for full-year 2018, up from 9.4 million b/d in 2017, and will average 11.8 million b/d in 2019. If the 2018 and 2019 forecast annual averages materialize, they would be the highest levels of production on record, surpassing the previous record set in 1970.
Tight oil production in the Permian region of West Texas and New Mexico is the main driver of rising U.S. production. Among other countries outside of the Organization of the Petroleum Exporting Countries (OPEC), Canada and Brazil are also expected to experience significant growth in oil production in 2019.
EIA expects that OPEC crude oil production will average 32.0 million b/d in 2018, a decrease of about 0.4 million b/d from the 2017 level. Total OPEC crude oil output is expected to increase slightly in 2019 to an average of 32.1 million b/d. The 2018 and 2019 levels are 0.2 million b/d and 0.3 million b/d lower, respectively, than forecast in the May STEO, reflecting revised expectations of crude oil production in Venezuela and Iran. The lower OPEC forecast is one of the main reasons EIA expects oil prices to be slightly higher in 2019 compared with last month’s forecast.
OPEC, Russia, and other non-OPEC countries will meet on June 22 to assess current oil market conditions associated with their existing crude oil production reductions. Current reductions are scheduled to continue through the end of 2018. Oil ministers from Saudi Arabia and Russia have announced that they will re-evaluate the production reduction agreement given accelerated output declines from Venezuela and uncertainty surrounding Iran’s production levels.
In the June STEO, EIA assumes declining Venezuelan and Iranian crude oil production in 2019 will be offset by increasing production from Persian Gulf producers, primarily Saudi Arabia. Depending on the outcome of the June 22 meeting, however, the magnitude of any supply response is uncertain. Overall, EIA expects global oil production to increase by almost 2.0 million b/d in 2019 compared with forecast oil demand growth of 1.7 million b/d.
LONDON (Bloomberg) -- Oil steadied just below $67/bbl as Saudi Arabia’s energy minister said an OPEC agreement to raise production is “inevitable.”
Futures in New York rose 0.5% after a 1.4% increase in the past three sessions. After talks in Moscow last night, Saudi Energy Minister Khalid Al-Falih said Thursday he expects OPEC to reach a deal to gradually boost output. His Russian counterpart Alexander Novak said they agree on the need for an increase, but the volume and timing of the extra production are still under discussion.
NEW DELHI (Bloomberg) -- Two of Asia’s largest crude buyers are considering teaming up to buy U.S. supplies and counter OPEC’s dominance in the world’s biggest oil market.
India and China are discussing ways to boost imports of U.S. crude to Asia, a move aimed at reducing their dependence on cargoes from members of the Organization of Petroleum Exporting Countries, according to an Indian government official. The two nations want to put pressure on OPEC producers to keep prices under control, he said in New Delhi on Wednesday, asking not to be identified because of internal policy.
In the June 2018 update of its Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts Brent crude oil prices will average $71 per barrel (b) in 2018 and $68/b in 2019. The new 2019 forecast price is $2/b higher than in the May STEO. The increase reflects global oil markets balances that EIA expects to be tighter than previously forecast because of lowered expected production growth from both the Organization of the Petroleum Exporting Countries (OPEC) and the United States. Brent crude oil spot prices averaged $77/b in May, an increase of $5/b from April and the highest monthly average price since November 2014. EIA expects West Texas Intermediate (WTI) crude oil prices will average almost $7/b lower than Brent prices in 2018 and $6/b lower than Brent prices in 2019 (Figure 1).
EIA expects that OPEC crude oil production will average 32.0 million b/d in 2018, a decrease of about 0.4 million b/d compared with 2017. Total OPEC crude oil output is expected to increase slightly, however, to an average of 32.1 million b/d in 2019, despite expected falling production in Venezuela and Iran, along with decreasing output in a number of other countries.
OPEC, Russia, and other non-OPEC countries will meet on June 22, 2018, to assess current oil market conditions associated with their existing crude oil production reductions. Current reductions are scheduled to continue through the end of 2018. Oil ministers from Saudi Arabia and Russia have announced that they will re-evaluate the production reduction agreement given accelerated output declines from Venezuela and uncertainty surrounding Iran’s production levels. In the June STEO, EIA assumes some supply increases from major oil producers in 2019. Depending on the outcome of the June 22 meeting, however, the magnitude of any supply response is uncertain. EIA currently forecasts global petroleum and other liquids inventories will increase by 210,000 b/d in 2019, which EIA expects will put modest downward pressure on crude oil prices in the second half of 2018 and in 2019.
EIA expects a decline in Iranian crude oil production and exports starting in November 2018, when many of the sanctions lifted in January 2016 are slated to be re-imposed. Iranian crude oil production is expected to fall by 0.2 million b/d in November 2018 compared with October and by an additional 0.5 million b/d in 2019.
The outlook for Venezuelan production is also lower than in the May STEO, with EIA now expecting larger declines in both 2018 and 2019 than previously forecasted. The seizure of state oil company PdVSA’s assets in the Caribbean by ConocoPhillips has diminished PdVSA’s ability to continue meeting its export obligations because it now must rely solely on domestic ports and ship-to-ship transfers to sustain crude oil exports. Venezuela’s domestic export infrastructure, however, is in disrepair and unable to accommodate the volume of exports previously handled out of its Caribbean facilities.
EIA expects that decreases in Iranian and Venezuelan production will be partially offset by increased production from Persian Gulf producers, most notably Saudi Arabia, which will likely increase production in an effort to offset Iranian production losses. Other sources of increasing production include Kuwait, the United Arab Emirates, and Qatar, all of which have been restraining their crude oil output in compliance with the November 2016 OPEC/non-OPEC agreement on production cuts.
U.S. crude oil prices in both the Permian region and in Cushing, Oklahoma, traded at lower values relative to Brent in May, continuing the trend of constraints in transporting crude oil to the U.S. Gulf Coast for refining or for export, as discussed in the April and May STEOs. The Brent–WTI front-month futures price spread, in particular, widened to $11.43/b on June 7, the widest since February 2015. Although transportation constraints to the U.S. Gulf Coast are primarily affecting Permian Basin crude oils, the rapid increase in the Brent–WTI futures price spread in May and early June 2018 suggests some constraints are developing in crude oil transported from Cushing (where the WTI futures contract is delivered) to the Gulf Coast.
Because transportation options out of Cushing are limited, it remains uncertain how much the spread could narrow if Gulf Coast refiners increase refinery runs, which were lower than expected in May. In addition, U.S. crude oil exports are currently limited to higher-cost options which, unless port infrastructure buildout is expanded, will likely maintain a wide Brent–WTI spread. EIA is increasing its forecast of the Brent–WTI spot price spread for the second half of 2018 from $5.49/b to $7.67/b and for 2019 from $5.12/b to $5.79/b.
EIA estimates that U.S. crude oil production averaged 10.7 million b/d in May 2018, up 80,000 b/d from the April level. EIA projects that U.S. crude oil production will average 10.8 million b/d for full-year 2018, up from 9.4 million b/d in 2017, and will average 11.8 million b/d in 2019.
U.S. average regular gasoline and diesel prices decrease
The U.S. average regular gasoline retail price decreased nearly 3 cents from last week to $2.91 per gallon on June 11, 2018, up 55 cents from the same time last year. East Coast prices decreased nearly four cents to $2.84 per gallon, Midwest prices decreased three cents to $2.82 per gallon, Gulf Coast prices decreased nearly three cents to $2.70 per gallon, and West Coast and Rocky Mountain prices each decreased less than a penny to $3.45 per gallon and $2.99 per gallon, respectively.
The U.S. average diesel fuel price decreased 2 cents from last week to $3.27 per gallon on June 11, 2018, 74 cents higher than a year ago. Midwest prices declined nearly three cents to $3.20 per gallon, while East Coast, Gulf Coast, West Coast, and Rocky Mountain prices each declined nearly two cents to $3.26 per gallon, $3.04 per gallon, $3.77 per gallon, and $3.34 per gallon, respectively.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 3.7 million barrels last week to 50.8 million barrels as of June 8, 2018, 10.7 million barrels (17.4%) lower than the five-year average inventory level for this same time of year. Midwest, Gulf Coast, Rocky Mountain/West Coast, and East Coast inventories increased by 1.9 million barrels, 1.5 million barrels, 0.2 million barrels, and 0.1 million barrels, respectively. Propylene non-fuel-use inventories represented 5.7% of total propane/propylene inventories.
Permian basin oil production is forecast to reach 5.4 million b/d by 2023—more than current production from any single Organization of Petroleum Exporting Countries member other than Saudi Arabia, IHS Markit said in a new report.
Permian oil production already is a major force in world supply growth, the report said, adding that IHS Markit analysts expect a “stunning” level of growth that will comprise more than 60% of net world production growth.
The International Energy Agency expects demand for oil to grow next year despite identifying several stumbling blocks such as appreciating crude prices and trade protectionism, writes the WSJ’s Christopher Alessi.
In its closely watched monthly oil market report released on Wednesday, the IEA laid out for the first time its oil demand forecast for next year, saying it expects demand to grow by 1.4 million barrels a day in 2019, on par with this year. A significant part of that growth will be driven by rising demand for petrochemicals, the agency said.
But the Paris-based organization, which advises governments and corporations on energy trends, cautioned that risks to its forecast are on the rise.
“These include the possibility of higher prices, a weakening of economic confidence, trade protectionism and a potential further strengthening of the U.S. dollar,” the report noted.
Meanwhile, oil prices edged lower Wednesday, as traders appeared to discard fresh signs of robust demand and kept their eyes fixed on OPEC’s gathering next week.
Brent crude, the global oil benchmark, was down 0.36% at $75.61 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were down 0.18% at $66.24 a barrel.