In EIA’s December Short Term Energy Outlook (STEO), both the West Texas Intermediate (WTI) and Brent crude oil 2017 price forecasts increased by about US$1/bbl from the November STEO, with prices expected to average US$51/bbl and US$52/bbl, respectively. The WTI price is forecast to average US$49/bbl in the first half of 2017 and end the year at US$54/bbl, while the Brent price is forecast to average US$50/bbl in the first half of 2017 and end the year at US$55/bbl. The forecast includes consideration of the Organisation of the Petroleum Exporting Countries’ (OPEC) recent announcement to reduce production. However, the agreement only resulted in small changes to the STEO forecast.
At the 30 November OPEC meeting, member countries agreed to reduce production by approximately 1.2 million bpd from an October baseline and to lower OPEC’s production ceiling to 32.5 million bpd beginning 1 January 2017. The agreement is meant to last six months with an option to extend for an additional six months.
EIA adjusted the December STEO by reducing OPEC’s crude oil production by 100 000 bpd in the first quarter of 2017 to 32.8 million bpd. The difference between OPEC’s and EIA’s production estimates reflects, in part, differences in production in Indonesia, Libya, and Nigeria, which are not participating in the agreement. OPEC’s agreed upon output levels for early 2017 were similar to EIA’s November STEO forecast, and already included some expectation of slower production growth in 2017.
Several non-OPEC producers also announced their intention to freeze or reduce production, with the agreement stating that non-OPEC countries will reduce production by 600 000 bpd. Trade press indicates that Russia will account for 300 000 bpd of this reduction, staged over the first quarter of 2017, but it is currently unclear where the other 300 000 bpd will come from other than modest reductions from some Persian Gulf nations such as Oman.
Oil prices rose as the OPEC agreement came together and was announced. However, the extent to which the plans will be carried out and actually reduce supply below levels that would have occurred in its absence remains uncertain. A price recovery above US$50/bbl could contribute to supply growth in US tight oil regions and in other non-OPEC producing countries that do not participate in the OPEC-led supply reductions. Crude oil prices near US$50/bbl have led to increased investment by some US production companies, particularly those operating in the Permian Basin in Texas and New Mexico.
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