WASHINGTON, D.C.– The US Energy Information Administration (EIA) has warned in its most recent Short-Term Energy Outlook (STEO) that possible supply growth expected in 2018 could contribute to weaker oil prices later this year.
EIA now forecasts OPEC crude oil production to average 32.3 MMb/d in 2017 and 32.8 MMb/d in 2018, about 0.2 MMb/d and 0.4 MMb/d, respectively, lower than previously forecast. With lower forecast OPEC production, EIA expects global oil inventories to decline by an average of almost 0.2 MMb/d in 2017. The largest draws are expected during 3Q 2017, when global oil inventories are forecast to fall by an average of 0.4 MMb/d.
If inventory draws of this magnitude materialize in the coming months and gross US refinery runs remain above 17 MMb/d, the possibility exists for some upward pressure on crude oil prices. EIA expects Brent spot prices to average $54/bbl in 3Q 2017, up from an average of $50/bbl in May.
However, it continued, because US tight oil production is relatively responsive to changes in oil price, and given an estimated six-month lag between a change in oil prices and realized production, higher crude oil prices in mid-2017 have the potential to raise US production in 2018.
The expectation of supply growth in 2018 could contribute to oil price weakness in late 2017 and early 2018, the EIA said. The current forecast assumes OPEC’s cuts are extended beyond next March, but that non-compliance, which begins to grow in late-2017, increases somewhat in the 2Q 2018. Without a further extension of the OPEC agreement, EIA would expect larger inventory builds in 2018 than are included in this forecast.
The agency also said it expects that supply growth from the US, Brazil, and OPEC in 2018 will contribute to global oil inventories increasing by 0.1 MMb/d in 2018, with the largest builds expected in 2Q 2018.
The possibility of a return to modest oversupply in global oil markets contributes to the Brent spot price forecast averaging $56/bbl in 2018, $1/bbl lower than in the May STEO. However, some upward price pressures could emerge in 2H 2018 if EIA’s forecast that global inventories will decline during that period materializes and if the market expects global oil inventory withdrawals into 2019.
EIA said its OPEC production figures this month do not include Equatorial Guinea, which joined OPEC on May 25.
EIA forecasts US crude oil production to average 9.3 MMb/d in 2017 and 10.0 MMb/d in 2018. Growth in US production has been the largest contributor to the 0.8 MMb/d of non-OPEC liquids supply growth from January through May 2017. Continued increases in drilling activity in US shale basins, particularly a recent resumption in production growth from the Eagle Ford region in Texas, support production growth throughout the forecast.