We are constantly trying to predict the future of oil prices – that is just the nature of the beast in this business. So many things begin, and end, with the price of oil for us. Luckily, the U.S. Energy Information Administration (“EIA”) is literally in the business of analyzing and predicting the future of oil prices. Thank goodness, because there are so many factors that go in to predicting commodity pricing, this is not an easy feat!
The EIA’s Short-Term Energy Outlook (commonly known as “STEO”) was released on March 12, 2019 – the full report can be found here.
Let’s focus on the EIA’s price forecasts in this most recent STEO:
- Brent crude spot prices reportedly averaged $64 per barrel in February, which marks a $5 per barrel uptick since January.
- The EIA forecasts that Brent spot prices will average $63 per barrel in 2019 and $62 per barrel in 2020.
These forecasts are great news because they predict price stability, in general, through 2020.
Moving on to the Crude Oil Markets Review featured in the STEO, which can be found here, the takeaways are as follows:
- The STEO reports that the U.S. active oil rig count reached a 10-month low of 834 rigs as of March 8, suggesting the rate of U.S. crude oil production growth could slow.
- Yet, the EIA forecasts U.S. crude oil production will increase by 1.3 million b/d in 2019 and by 0.7 million b/d in 2020.
In addition, the STEO notes the potential for at least two wildcards – OPEC and U.S. production levels, as well as the pace of global oil demand growth. The STEO forecasts that these factors “present considerable uncertainty to oil market balances and price expectations.”
“Based on the current forecast, however, the EIA expects global inventory builds and rising OPEC spare capacity will limit significant upward oil price pressures in 2019 and in 2020.”
OPEC spare capacity? Remind me?
OPEC’s primary goal is managing oil supplies to achieve market stability. In December of 2018, OPEC member countries agreed to production cuts through June of 2019. According to MarketWatch’s article entitled, OPEC Looks to Cancel April Meeting as Oil-Producer Committee Reports Improved Output-Cut Compliance, as of February, compliance with the production cuts was at almost 90%. Said another way, most OPEC member countries voluntarily complied with the agreed upon oil production cuts.
While it is difficult to predict what lies ahead for oil prices, stay tuned – we will have our fingers on the pulse of oil prices. Many factors influence oil prices and we will keep you apprised of new developments!