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Crude price forecast continues to drop Energy Information Administration forecasts Brent will average $54 per barrel this year, down $6 per barrel from July forecast KRISTEN NELSON Petroleum News
The forecast price of crude oil continues to fall.
The U.S. Energy Information Administration’s Aug. 11 Short-Term Energy Outlook says the agency is now projecting that the North Sea Brent crude oil price will average $54 per barrel in 2015, down $6 per barrel from the July forecast. The 2016 Brent average is now projected at $59 per barrel, down $8 from July.
West Texas Intermediate prices in 2015 and 2016 are expected to average $5 per barrel less than Brent, EIA said.
The agency warned that its “updated projection remains subject to significant uncertainties as the oil market moves toward balance.” The recent price declines are attributed to “concerns about lower economic growth in emerging markets, expectations of higher oil exports from Iran, and continuing actual and expected growth in global inventories,” the agency said.
The Brent spot price averaged $57 per barrel in July, down $5 a barrel from July, EIA said, with the price falling further into early August and settling at $48 per barrel Aug. 7.
WTI averaged $51 a barrel in July, down $9 from June, and Cushing, Oklahoma, crude oil inventories, while down by 5 million barrels from a record high of 62.2 million barrels April 17, remain some 40 million barrels higher than this time in 2014.
Inventories up “Global oil inventories are growing at their highest rate in almost two decades, which should help keep oil prices low through the end of next year,” EIA Administrator Adam Sieminski said in a statement.
“High global oil inventories, along with weaker fuel demand in industrialized countries and the possibility of more Iranian oil in the world market, are expected to push the annual average price for Brent crude oil below $60 a barrel this year and in early 2016,” he said.
EIA said global liquids inventories continue to grow, putting “significant downward pressure on prices,” rising by an estimated 2.3 million barrels per day January through July, compared with an average increase of 600,000 bpd over the same period in 2014.
EIA said it is projecting inventory builds to moderate over the coming months, but to remain high compared with previous years. Concern over the possibility of increased volumes of Iranian oil contributed to the recent price decline.
US production down U.S. crude oil production averaged 8.7 million barrels per day last year, EIA said, and is expected to increase to 9.4 million bpd this year and then decrease to 9 million bpd in 2016. That forecast is some 100,000 bpd lower for this year and 400,000 bpd lower for 2016 than the July forecast.
“While U.S. crude oil production this year is expected to be 100,000 barrels per day less than previously forecast, oil output is still on track to be the highest since 1972,” Sieminski said.
EIA said the decrease in the U.S. oil production forecast “reflects a lower oil price outlook that will reduce expected oil-directed rig counts and drilling and well-completion activities throughout the forecast period.”
The agency said estimates indicate U.S. crude production peaked at 9.5 million bpd in May, was unchanged in April and began falling in May, dropping some 180,000 bpd from the April level, reflecting both temporary outages in the Gulf of Mexico and declines in onshore production beginning in April.
EIA said it expects U.S. crude oil production to continue to decline through the third quarter of 2016, with production forecast to average 8.8 million bpd. Production is forecast to begin rising in late 2016, returning to an average of 9.1 million bpd in the fourth quarter. Thirteen projects are scheduled to come online in the Gulf of Mexico in 2015 and 2016, pushing production from that area from an average of 1.4 million bpd in the fourth quarter of 2014 to more than 1.6 million in the same period in 2016.
Unattractive economic returns Expected U.S. crude oil production declines from May this year to the third quarter of next year “are largely attributable to unattractive economic returns in some areas of both emerging and mature onshore oil production regions, as well as seasonal factors such as anticipated hurricane-related production disruptions in the Gulf of Mexico,” EIA said, with 2015 cash flow and capital reductions prompting “companies to defer or redirect investment away from marginal exploration and research drilling to focus on core areas of major tight oil plays.”
With reduced investment, the U.S. oil-directed rig count is the lowest in nearly five years, the agency said, and well completions are significantly behind levels from last year.
Oil prices, however, particularly in the second quarter of this year, “remained high enough to support continued development drilling in the core areas of the Bakken, Eagle Ford, Niobrara, and Permian basins, with July showing the first month-to-month increase in the oil-directed rig count since October 2014.”
With the recent drop in oil prices and the lowered outlook for oil prices onshore production declines are projected to be deeper and more prolonged, the agency said.
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