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EIA drops forecast crude oil spot price Agency projecting Brent will average $83 per barrel next year, down $18 from October projection, citing significant uncertainties Kristen Nelson Petroleum News
North Sea Brent crude oil spot prices fell during October, averaging $95 a barrel at the beginning of the month and $84 at the end, the U.S. Energy Information Administration said in its November Short-Term Energy Outlook.
“The causes included weakening outlooks for global economic and oil demand growth, the return to the market of previously disrupted Libyan crude oil production and continued growth in U.S. tight oil production,” the agency said Nov. 12.
EIA said Brent averaged $87 a barrel in October, the first month since November 2010 that Brent had averaged below $90 a barrel.
The agency is now forecasting that Brent will average $83 a barrel in 2015, down $18 a barrel from its October forecast.
“There is significant uncertainty over the crude oil price forecast because of the range of potential supply responses from the Organization of the Petroleum Exporting Countries (OPEC), particularly Saudi Arabia, and U.S. tight oil producers to the new lower oil price environment,” EIA said.
Down $10 from September The North Sea Brent average of $87 a barrel in October was down $10 from September, EIA said.
“The combination of robust world crude oil supply and weak global demand contributed to rising global inventories and lower crude oil prices,” EIA said.
The West Texas Intermediate crude oil spot price averaged $93 a barrel in September and fell to $84 in October. EIA said high refinery runs contributed to the narrowing of the WTI discount to Brent from an average of $8 a barrel in the first half of the year to $3 a barrel in July.
With recent lower-than-expected European and Asian demand combined with growth in global liquids supply depressing benchmarks like Brent, the WTI discount to Brent again fell to $3 a barrel in October.
EIA said it expects WTI to average $80 a barrel in the fourth quarter and $78 a barrel next year, drops of $11 and $17 per barrel respectively from the agency’s October forecast.
EIA expects the discount of WTI to Brent to widen slightly from current levels, averaging $6 a barrel next year.
The agency said futures contracts for February 2015 delivery traded during the five-day period ending Nov. 6 averaged $79 a barrel, compared to $95 per barrel for February delivery this time last year.
Saudi Arabia EIA said it has made “significant changes” to its global oil balance forecast for this month’s outlook and “expects that global oil markets will be looser than projected” in October’s outlook, as oil supply outpaces consumption “by a larger amount,” with a resulting global stock build of 400,000 barrels per day in the fourth quarter and a build of the same amount in 2015.
EIA said its global forecast model was revised upward by 200,000 bpd to an average of 92.9 million bpd in 2015, “mostly reflecting a smaller decline in Saudi Arabia’s production compared with last month’s forecast.” The agency revised its global demand forecast down by 200,000 bpd to average 92.5 million bpd in 2015, “based on weaker global economic growth prospects for next year.”
Going forward, EIA believes the role of Saudi Arabia in the oil market is “highly uncertain” because that country has said it “would rather maintain its export market share than cut production to keep prices higher.”
The agency said this is a different role for Saudi Arabia, which in the past “often played the role of the swing producer, cutting its production to accommodate supply growth elsewhere or increasing its output level to make up for a supply shortfall.”
EIA said it assumes Saudi Arabia will continue to play some swing role, but to a lesser extent because of its sensitivity to loss of market share, and is projecting Saudi Arabia will cut its production below its current 9.5 million bpd to avoid further downward pressure of prices as non-OPEC supply grows, but will maintain production above 9 million bpd through 2015.
Non-OPEC production Non-OPEC liquids production grew by some 1.4 million bpd last year, averaging 54.2 million bpd, and is projected to grow by 1.9 million bpd this year and by 900,000 bpd in 2015, with the United States the leading contributor to non-OPEC growth, increasing by 1.5 million bpd this year and an estimated 1.1 million bpd in 2015.
EIA said it revised U.S. liquids growth down by 100,000 bpd for 2015 because of the recent decline in crude oil prices and the expectation that WTI will average near $80 through 2015.
EIA is forecasting U.S. crude oil production to average 8.6 million bpd this year, up from 7.5 million bpd in 2013, and to grow to 9.4 million bpd in 2015.
With WTI forecast to average $78 per barrel in 2016, the agency said it “expects to see some reduction in drilling activity because of marginal economic returns in some areas. This will primarily occur in noncore areas of emerging and mature tight oil basins, where low-producing wells become less attractive at lower oil prices and companies scale back expensive exploration and research drilling.”
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