In the May 2019 edition of the ‘Short-Term Energy Outlook’ (STEO), the US Energy Information Administration (EIA) revised its price forecast for Brent crude oil upward, reflecting price increases in recent months, more recent data, and changing expectations of global oil markets.
Several supply constraints have caused oil markets to be generally tighter and oil prices to be higher so far in 2019 than previous STEOs expected.
OPEC members had agreed at a December 2018 meeting to cut crude oil production in the first six months of 2019; compliance with these cuts has been more effective than EIA initially expected. In the January STEO, OPEC’s crude oil and petroleum liquids production was expected to decline by 1 million bpd in 2019 compared with the 2018 level, but EIA now forecasts OPEC production to decline by 1.9 million bpd in the May STEO.
Within OPEC, EIA expects Iran’s liquid fuels production and exports to also decline. On 22 April 2019, the US issued a statement indicating that it would not reissue waivers, which previously allowed eight countries to continue importing crude oil and condensate from Iran after their waivers expired on 2 May. Although EIA’s previous forecasts had assumed that the US would not reissue waivers, the increased certainty regarding waiver policy and enforcement led to lower forecasts of Iran’s crude oil production.
Venezuela has experienced declines in production and exports as a result of recurring power outages, political instability, and US sanctions. In addition to supply constraints that have already materialised in 2019, political instability in Libya may further affect global supply. Any further escalation in conflict may damage crude oil infrastructure or result in a security environment where oil fields are shut in. Either situation could reduce global supply by more than EIA currently forecasts.
In the May STEO, total OPEC crude oil and other liquids supply was estimated at 37.3 million bpd in 2018, and EIA forecasts that it will average 35.4 million bpd in 2019. EIA assumes that the December 2018 agreement among OPEC members to limit production will expire following the June 2019 OPEC meeting.
US crude oil and other liquids production is sensitive to changes in crude oil prices, taking into account a lag of several months for drilling operations to adjust. As crude oil prices have increased in recent months, so too have EIA’s domestic liquid fuels production forecasts for the remaining months of 2019.
US crude oil and other liquids production, which grew by 2.2 million bpd in 2018, is forecast in EIA’s May STEO to grow by 2 million bpd in 2019, an increase of 310 000 bpd more than anticipated in the January STEO. In 2019, EIA expects overall US crude oil and liquids production to average 19.9 million bpd, with crude oil production alone forecast to average 12.4 million bpd.
Relative to these changes in forecasted supply, EIA’s changes in forecasted demand were relatively minor. EIA expects that global oil markets will be tightest in 2Q19 and 3Q19, resulting in draws in global inventories. By 4Q19, EIA expects that inventories will build again, and Brent crude oil prices will fall slightly.
More information about changes in STEO expectations for crude oil prices, supply, demand, and inventories is available in This Week in Petroleum.
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