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Short-Term Energy Outlook

Release Date: May 9, 2017  |  Next Release Date: June 6, 2017  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Crude Oil

Prices: During the first half of April, crude oil prices rose, returning to the mid-$50 per barrel (b) level where they had been from December through February. However, crude oil prices fell during the second half of April and on May 4 reached the lowest point since the end of November. Between April 3 and May 4, Brent crude oil front-month futures prices declined by $4.74/b to settle at $48.38/b, and West Texas Intermediate (WTI) front-month futures prices declined by $4.72/b to settle at $45.52/b (Figure 1). On average, however, Brent and WTI spot prices in April were $0.72/b and $1.73/b higher, respectively, than the March averages.

Figure 1: Historical crude oil front month futures prices

Reports from the Joint Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC Ministerial Monitoring Committee suggested compliance with the crude oil production cut agreement remained high among its members in March. However, because global oil inventories remain high, oil ministers of several OPEC countries, including those of Saudi Arabia, Kuwait, and Iraq, have suggested their respective countries would support an extension to the crude oil production cut agreement for six months beyond the current end date in June. In addition to the voluntarily production cuts in several countries, Canada experienced an unplanned outage at an oil sands upgrader plant, which resulted in lower production of several Canadian crude oil streams.

Upside support for crude oil prices resulting from voluntary production cuts or unplanned outages over the past months has been countered by rising crude oil production in Libya and in the United States. Libya announced at the beginning of May that its crude oil production had increased to the highest level since late 2014. Further, U.S. crude oil production is estimated to have reached 9.1 million barrels per day (b/d) in April, the highest level since March 2016. The number of U.S. oil drilling rigs reached a two-year high at the beginning of May. Because of a lag between the deployment of drilling rigs and realized oil production, recent rig increases indicate that U.S. oil production will likely rise further in the coming months. Expectations of supply growth in 2017, particularly in the United States, as well as concerns that a potential extension of the agreement will not reduce global inventories as quickly as expected contributed to a sharp drop in crude oil prices in the first week in May.

EIA projects that the global crude oil market in 2017 and 2018 will have more supply growth compared with the April STEO, resulting in a lower forecast of crude oil prices in the coming months. The Brent crude oil spot price is forecast to average $53/b in 2017, down from $54/b in the April STEO, and $57/b in 2018, unchanged from the April STEO. WTI prices are expected to average $2/b lower than Brent prices in both years.

Growth in global liquid fuels supply is expected to limit upward price pressure over the next year. World liquid fuels supply is projected to grow by 1.4 million b/d in 2017 and by 1.9 million b/d in 2018. Compared with the April STEO forecast, those growth estimates are higher by about by 0.2 million b/d in 2017 and 0.1 million b/d in 2018. The upward revision to expected supply growth is based on higher expected crude oil production growth from the United States, Brazil, and Canada and more OPEC non-crude liquid production growth. Expected world liquid fuels consumption growth is largely unchanged from the previous STEO, with growth forecast at 1.6 million b/d in both 2017 and 2018.

EIA estimates U.S. commercial crude oil inventories declined by 7.4 million barrels during April, compared with an average increase of 7.4 million barrels over the past five years. The decline in U.S. crude oil inventories is likely because of the increase in gross inputs to refineries in April. In this STEO, EIA estimates that refinery inputs reached 17.2 million b/d in April, the highest on record for any month.

For most of April, the WTI 1st-13th month futures price spread narrowed relative to that of Brent, reflecting stronger near-term WTI prices as a result of the decline in U.S. crude oil inventories. The stronger near-term WTI prices movements relative to Brent suggests the global crude oil market likely did not experience crude oil inventory draws similar to those in the United States. However, with the decline of crude oil prices in early May, both WTI and Brent front-month prices weakened significantly compared with later-dated contracts. The WTI 1st-13th month futures price spread declined 29 cents/b to -$2.06/b from April 3 to May 4 (Figure 2). The Brent 1st-13th month futures price spread declined 67 cents/b to -$1.39/b over the same period.

Figure 2: Crude oil front month - 13th month futures price spread

Price spreads between Brent and medium-sour Middle Eastern crude oils continue to narrow, making light, sweet crude oil from the Atlantic Basin more price competitive for consumers in Asia. Reports from trade press indicate that crude oil exports from West Africa and Europe to Asia have increased over the past few months. In February, for the first time, the United States exported more crude oil to China than to any other country. Increased flows of light, sweet crude oil into Asia are lowering prices of local Asian crude oils of similar quality. In April, the price differential between the official selling price of a basket of mostly light, sweet crude oils set by Malaysia's state-owned oil company, Petronas, and Dated Brent fell to $3.50/b from more than $4/b between October 2016 and March 2017 (Figure 3).

Figure 3: Brent and WTI Net Money Manager Positions

Price Summary
  2015 2016 2017 2018
a West Texas Intermediate.
WTI Crude Oila
(dollars per barrel)
48.67 43.33 50.68 55.10
Brent Crude Oil
(dollars per barrel)
52.32 43.74 52.60 57.10
Global Petroleum and Other Liquids
  2015 2016 2017 2018
a Weighted by oil consumption.
Supply & Consumption (million barrels per day)
Non-OPEC Production 58.77 58.17 59.04 60.18
OECD Consumption 46.37 46.86 47.15 47.45
Non-OECD Consumption 48.73 49.88 51.15 52.48
Total World Consumption 95.10 96.74 98.30 99.93
Primary Assumptions (percent change from prior year)
World Real Gross Domestic Producta 2.7 2.3 2.8 3.0
Real U.S. Dollar Exchange Rateb 10.7 6.3 2.9 2.3