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Crude oil prices expected to rise

Published by , Senior Editor
Hydrocarbon Engineering,

In its March ‘Short-Term Energy Outlook’ (STEO), the US Energy Information Administration (EIA) expects Brent crude oil prices will average US$64/ in 2Q21 and then fall to less than US$60/bbl through the end of 2022.

Higher crude oil prices in March and April are primarily a result of lower crude oil production from members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+), as announced at their 4 March meeting.

In February 2021, OPEC+ cuts, combined with supply disruptions in the US, contributed to monthly global petroleum inventory withdrawals that EIA estimates totalled 3.7 million bpd, the largest monthly withdrawal since December 2002. The Brent crude oil futures price averaged US$63/bbl in early March leading up to the OPEC+ meeting, and the OPEC+ announcement put further upward pressure on crude oil prices.

The front-month Brent futures price briefly surpassed US$70/bbl in intraday trading in the days following the announcement, not only because of the announcement but also because of an attack on the Ras Tanura oil facilities in Saudi Arabia on 7 March. As a result of the extension of OPEC+ production cuts, EIA expects draws on global petroleum and other liquids inventories of 1.8 million bpd and 0.6 million bpd in the 1Q21 and 2Q21, respectively.

The sustained OPEC+ production curtailment through April suggests that supply will remain constrained in the near term, even as demand continues to increase. As a result, EIA expects that further inventory withdrawals to meet rising crude oil demand will keep crude oil prices elevated through at least the end of April. EIA’s forecast of downward oil price pressure and increased crude oil availability has several key uncertainties.

The speed of actual demand recovery, based on COVID-19 vaccination rates and the degree to which travel and employment conditions return to pre-COVID norms, remains an important uncertainty on the demand side. At the same time, the degree to which OPEC+ production cuts will continue after April remains a source of uncertainty on the supply side, especially because increasing crude oil prices will encourage OPEC+ participants to agree to production increases in later meetings or to relax compliance with the existing agreement. Finally, the responsiveness of US tight oil production to higher oil prices is also uncertain.

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