Crude prices to decline in 2014

In the May Short-Term Energy Outlook (STEO), the US Energy Information Administration (EIA) has forecast that the spot price of North Sea Brent crude oil will fall through the remainder of 2014. The EIA anticipates that prices will decline from the current US$ 108/bbl to average US$ 103/bbl during the fourth quarter.

Brent prices have been relatively stable since mid-2013. In April, the Brent spot price averaged US$ 108/bbl, the 10^th consecutive month that Brent price have averaged in the range US$ 107/bbl – US$ 112/bbl. According to the EIA, stability results partly from growing US crude oil production from tight oil plays that has made crude previously imported to the US available to the global market.

Higher US production has helped to offset high levels of unplanned supply disruptions in 2013 - 14. In April, global unplanned supply disruptions averaged 3.2 million bbl/d, approximately 0.6 million bpd higher than the 2013 average. OPEC countries accounted for 2.6 million bpd of this total.

However, Brent prices will gradually move below the US$ 107/bbl – US$ 112/bbl range during the second half of the year as demand for OPEC crude falls to offset the combined increases in non-OPEC total liquids supply and OPEC non-crude supply, which are projected to exceed growth in world liquids demand.

Over the course of the year, Brent price is expected to average US$ 106/bbl, down US$ 2 from the 2013 average.

The EIA expects West Texas Intermediate (WTI) to decline at a slightly faster rate than Brent. In April WTI traded at an average discount to Brent of US$ 6/bbl. This discount will widen to an average of US$ 10/bbl in the third quarter and US$ 12/bbl in the fourth quarter. Hence, WTI will fall to an average of US$ 92/bbl in the fourth quarter. The widening spread reflects the economics of running increased volumes of very light crude oil at US Gulf Coast refineries and the transportation costs of moving US crude oil production to marginal markets on the US East and West Coasts.

Adapted from a press release by Emma McAleavey.

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