EIA Raises Oil Price Forecast, Predicts Record US Crude Output
Following OPEC's extension of its production cut plan, the EIA has raised its price forecasts for both American and Brent crude for the current and next years, and expects the United States' oil production increase in 2023 to exceed previous expectations, but the forecast for consumption growth has been "halved."
The U.S. Energy Information Administration (EIA) raised its oil price forecasts for this year and next on Tuesday, stating that as OPEC extends its production cut plan until 2024, global supply tightens, and U.S. production is expected to reach an all-time high.
In its Monthly Short-Term Energy Outlook report released on Tuesday, the EIA increased its forecast for the 2023 WTI crude oil price to $74.60 per barrel, a 1.3% increase from the May forecast, and the 2024 price forecast was raised by 13% to $78.51 per barrel. At the same time, the EIA raised its forecast for the global benchmark Brent crude oil price for 2023 by 1.1% to $79.54 per barrel and increased the 2024 forecast by 12.1% to $83.51.
The EIA's adjustment to its oil price forecasts came after it expected a slowdown in global oil production growth. Although the EIA kept its forecast for the total global production of crude oil and liquid fuels in 2023 essentially unchanged at 101.37 million barrels per day, it lowered its forecast for 2024 by 0.3% to 102.69 million barrels per day, mainly due to a 1.8% reduction in the daily production forecast for OPEC member countries in 2024 to 33.84 million barrels.
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However, the growth in U.S. crude oil production may offset some of the supply gap. The agency stated that despite the slowdown in domestic crude oil production growth, U.S. crude oil production is expected to set new annual records in 2023 and 2024, with an estimated 12.61 million barrels per day this year, a 0.6% increase from its May forecast, and the 2024 production forecast was raised by 0.7% to 12.77 million barrels per day.
The EIA attributes the slowdown in U.S. crude oil production growth to capital being used to increase dividends and repurchase stocks rather than investing in new production, as well as the impact of a tighter labor market leading to rising costs and increased pressure on oilfield supply chains.
Overall, the agency expects that the total production of global crude oil and liquid fuels will still grow compared to the 2022 global production of 99.42 million barrels per day for both this year and next.
On the other hand, the EIA's forecast for the total consumption of global crude oil and liquid fuels remains largely unchanged, with 101.01 million barrels per day for 2023 and 102.71 million barrels per day for 2024. According to EIA data, the consumption in 2022 was 99.42 million barrels per day.
In the United States, the total petroleum consumption is expected to increase by only 100,000 barrels per day this year, reaching 20.4 million barrels per day, which is "halved" from the May forecast of a 200,000 barrels per day increase. The IEA stated that while services and tourism should drive the growth in demand for gasoline and jet fuel this year, diesel fuel consumption will decline as the role of manufacturing in the economy diminishes.
However, the EIA stated that the consumption of liquid fuels such as gasoline and jet fuel globally is expected to reach an all-time high in the next two years, mainly driven by non-OECD countries, especially China. EIA Administrator Joe DeCarolis said in a statement:"We anticipate that travel demand will continue to increase, which drives our record-breaking forecast for petroleum product consumption. The oil market remains highly uncertain, so we will continue to monitor developments and track supply and demand dynamics."
Furthermore, the EIA has also raised its forecast for U.S. retail gasoline prices, with this year's price forecast increased by 1.7% to $3.39 per gallon, and next year's forecast increased by 6.9% to $3.30 per gallon. The report adds:
"We expect new refining capacity along the Gulf Coast and the end of refinery maintenance in early June to increase gasoline production. The increase in gasoline production leads to an increase in gasoline inventories, which is expected to put downward pressure on gasoline crack spreads and retail prices starting from July."
However, for the natural gas spot price at the U.S. Henry Hub, the EIA forecasts an average price of $2.66 per million British thermal units (MMBtu) in 2023, which is a decrease of 8.8% from the May report. The expected price for 2024 is $3.42 per MMBtu, a decrease of 8% from the previous forecast.
According to the EIA's estimates, U.S. natural gas (dry gas) production reached a record average of 104 billion cubic feet per day in April. The agency states that it expects natural gas production to remain slightly below this level for the rest of the year. DeCarolis said:
"Drilling in the Permian Basin typically yields a mixture of hydrocarbons, including crude oil and natural gas. Therefore, as producers increase crude oil output in the region, we expect natural gas production to increase as well."
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