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EIA expects Brent prices to decline through the end of 2013

Hydrocarbon Engineering,

The US Energy Information Administration (EIA)'s ‘This Week In Petroleum’, released on 21st August 2013, outlines that disruption to global crude oil and liquid fuels production amounted to 2.7 million bpd in July 2013.

Global refinery crude oil runs for the same period reached their expected 2013 peak. Combined, these developments helped to push Brent spot prices to an average of US$ 108/bbl in July, above the US$ 102 – 103/bbl average from April through June.

However, this upward movement in prices is likely to have been to some extent muted by growing non-OPEC supply in other regions, particularly growing US production which has reduced US imports of crude oil and in doing so released more barrels from global suppliers to other markets.

The EIA expects that continued rising non-OPEC production combined with seasonally decreasing demand from refiners will put downward pressure on Brent prices through the third and fourth quarters of this year.

In its August Short Term Energy Outlook (STEO), the EIA predicts that Brent spot price will average US$ 104/bbl in September, and US$ 102/bbl in the fourth quarter.

Production disruption in Iraq and Libya has had a significant impact through the summer months, reducing crude supplies, particularly in the Mediterranean market. In Iraq, repeated attacks on the Kirkuk to Ceyhan pipeline in Turkey pushed total Iraqi production disruptions to approximately 290 000 bpd in July, up 60 000 bpd from June.

In Libya, ongoing labor related protests at several oil production facilities boosted outages, reducing production to 1 million bpd in July, down from 1.5 million bpd in April.

Meanwhile, in Nigeria, crude exports were reduced through July and August as deliveries of Bonny Light grade were disrupted by work on key pipelines.

Outages in non-OPEC countries and record high global refinery runs also contributed to higher crude oil prices. Refinery runs were 78.3 million bpd in July, up from an average of 74.8 million bpd in the second quarter. The EIA anticipates that global runs will remain high in August, approximately 77.4 million bpd.

Disruptions to non-OPEC production, most of which occurred in Sudan and South Sudan, Yemen and Syria, averaged approximately 800 000 bpd. However, unanticipated flood related disruptions in Canada, mostly affecting North American inland markets, contributed almost a quarter of the total non-OPEC outages.

Tightness in light sweet crude oil supply resulting from a combination of production outages and increased refinery runs is most readily apparent in the absolute price levels of Brent crude oil. However, it is also evident in the Urals differential (the price of Urals crude oil compared with that of Brent). The Urals differential for crude oil delivered into the Mediterranean market moved from an average of US$ 0.48/bbl below Brent in June to an increasingly larger premium to Brent for much of July and the first weeks of August, reaching a US$ 2.76/bbl premium versus Brent on 8th August 2013.

In September, it is expected that a reduction in refinery purchases of crude will help relieve upward pressure on prices. The EIA anticipates that global crude oil runs will fall to 75.9 million bpd in October. The EIA additionally projects that non-OPEC liquid fuels production, predominantly crude oil, will increase through the end of 2013, with fourth quarter production averaging 55 million bpd.

It is likely that reduced crude buying has blunted the continued effects of production outages. This is already evident in the Urals differential in the Mediterranean, where Urals is again trading at a discount to Brent.

For more on the EIA’s ‘This Week In Petroleum’ for 21st August 2013, see also ‘Gasoline prices decrease, propane inventories higher’.

Adapted from a press release by Emma McAleavey.

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