EIA’s short-term energy outlook sees prices tending up

Compliance with OPEC production cuts forecast at more than 80 percent through end of third quarter, decline in fourth quarter

Petroleum News Alaska Staff

The U.S. Energy Information Administration said Aug. 6 that its short-term outlook for crude oil prices is up $2-$3 a barrel from July’s short-term forecast.

This reflects a change in the agency’s assumptions concerning OPEC crude oil production. The EIA had expected that compliance with OPEC agreed cuts would peak in May or June before falling as higher prices triggered more production.

The EIA said it still expects this to occur, but more gradually than forecast earlier.

Increased compliance with cuts in OPEC production will not only keep prices from falling in the near-term but they should also reduce inventories, thus putting pressure on prices to remain at current levels, or even increase, next year.

The agency said that prices are expected to stay around $18.50 per barrel (the average price paid for imported crude oil by U.S. refiners) for the remainder of 1999 (which would translate into a West Texas Intermediate crude price of about $20.50-$21.00 per barrel). Then, throughout most of 2000, monthly world oil prices are expected to be between $18.50-$19.00 per barrel (which would translate into a WTI crude price of about $20.50-$21.50 per barrel.)

The agency said its normal uncertainty range for crude oil prices suggests that expected end-2000 prices would be within about $3-$4 of the $19.00 per barrel level with a high degree of probability.

World oil demand is expected to grow by about 1.1 million barrels per day in 1999, and by another 1.7 million barrels per day in 2000 — essentially unchanged from July’s forecast.

OPEC compliance with the previous three production agreements is expected to peak at about 81-82 percent of the total 4.3 million barrels per day of agreed cuts in the second and third quarters of 1999, before gradually declining in the fourth quarter.