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This Week in Petroleum

Release date: June 12, 2019  |  Next release date: June 19, 2019

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EIA forecasts lower crude oil prices, but expected inventory declines present considerable uncertainty

In the June 2019 Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts that Brent crude oil prices will average $67 per barrel (b) in 2019 and in 2020. EIA expects that West Texas Intermediate (WTI) crude oil prices will average $59/b in 2019 and $63/b in 2020. In the June STEO, EIA forecasts Brent and WTI prices in 2019 will be $3/b and $4/b lower, respectively, than forecast in the May 2019 STEO, and the 2020 crude oil price forecasts are unchanged. The lower 2019 price forecasts reflect recent price declines in global crude oil prices, which lowered the starting point for EIA’s forecast. However, the forecast is highly uncertain, however, as reflected in high implied volatility for crude oil options, which EIA uses to inform a market-derived confidence interval of price ranges (Figure 1). Recent data for a variety of oil market indicators—macroeconomic and global oil demand growth, liquid fuels stock levels, refinery runs, production from members of the Organization of the Petroleum Exporting Countries (OPEC), and the effect of tariffs—point to continued price uncertainty.

Figure 1. West Texas Intermediate crude oil price forecasts

Concerns about the outlook for global demand growth have contributed to recent oil price declines. Several macroeconomic indicators—including expected industrial activity—as measured by the manufacturing Purchasing Managers’ Index (PMI), declined across several countries in May. The U.S. manufacturing PMI fell to its lowest level since 2009, and the Chinese manufacturing PMI for May declined to 49.4—any reading lower than 50 indicates a contraction in manufacturing activity. In addition, China and the United States issued tariffs on each other’s goods, and in late May, the United States announced potential tariffs on Mexico, which has added to economic growth uncertainty.

Global gross domestic product (GDP) has been revised downward to reflect the slowing economic activity and greater uncertainty. In the January 2019 STEO, EIA forecast oil-weighted global GDP growth to average 2.9% in 2019, but the GDP growth forecast fell to 2.3% in the June STEO, which would be the lowest growth since 2009 and the second-lowest growth on record since 1994, the first year for this data set. The downward revision in global GDP contributed to lower forecast global liquid fuels consumption growth in 2019, now expected to grow by 1.2 million barrels per day (b/d) in 2019, down by 0.2 million b/d from the May STEO forecast and 0.3 million b/d from the January STEO forecast.

Slower liquid fuels consumption growth likely appeared as increases in crude oil and other liquid fuels inventories. Specifically, U.S. crude oil inventories increased recently, during a time of year when they typically decrease (Figure 2). Total U.S. crude oil inventories increased by 15.7 million barrels in May, compared with a five-year average decrease of 2.1 million barrels for the month. If confirmed in monthly data, the May 2019 stock build would be the largest for any May since 1991. U.S. crude oil inventory levels were 485.5 million barrels as of June 7, nearly 38 million barrels higher than the five-year (2014–18) average. The builds likely reflect low refinery runs for this time of year.

Figure 2. U.S. commercial crude oil inventories

Although counter-seasonal inventory builds in the United States and weaker demand have contributed to recent oil price weakness, in the June STEO, EIA forecasts tightening balances, particularly in the third quarter of 2019, with a stock draw of 580,000 b/d (Figure 3). Although the STEO has reduced its outlook for global consumption growth, declines in consumption have been matched by declines in forecast liquid fuels production growth. Declining production in Venezuela and Iran, as well as Saudi Arabia’s over compliance with the December 2018 Vienna agreement to cut production, pushed crude oil production among OPEC members to 29.9 million b/d in May, the lowest for any month since July 2014. In the June STEO, EIA forecasts OPEC crude oil production will average 30.2 million b/d in 2019 and 29.7 million b/d in 2020, down by 140,000 b/d in each year compared with the May STEO forecast. In addition, as a result of new information about supply reductions in Russia related to a contaminated crude oil pipeline, EIA revised the 2019 Russian production forecast lower in the June STEO by 40,000 b/d compared with the May STEO forecast.

Figure 3. World liquid fuels production and consumption balance

As a result of the changes to both consumption and production, EIA forecasts an average stock draw of 290,000 b/d for 2019 in the June STEO (40,000 b/d higher than the May STEO forecast). EIA expects the stock draws in mid-2019 to put upward pressure on crude oil prices in the coming months. In 2020, however, EIA expects the declines in OPEC crude oil production to slow. This slow down, combined with continued growth in U.S. crude oil production, is forecast to lead to increased global production growth in 2020 and a forecast average stock build of 270,000 b/d (120,000 b/d more than the May STEO forecast) as world liquid fuels production growth outpaces consumption growth.

U.S. average regular gasoline and diesel prices fall

The U.S. average regular gasoline retail price fell nearly 8 cents from the previous week to $2.73 per gallon on June 10, 18 cents lower than the same time last year. The Midwest price fell nearly 13 cents to $2.62 per gallon, the West Coast price fell nearly 8 cents to $3.52 per gallon, the Gulf Coast price fell more than 6 cents to $2.36 per gallon, the East Coast price fell more than 4 cents to $2.62 per gallon, and the Rocky Mountain price fell more than 3 cents to $2.95 per gallon.

The U.S. average diesel fuel price fell 3 cents to $3.11 per gallon on June 10, 16 cents lower than a year ago. The West Coast and Rocky Mountain prices each fell nearly 5 cents to $3.72 per gallon and $3.11 per gallon, respectively, the Gulf Coast price fell more than 3 cents to $2.84 per gallon, the East Coast price fell nearly 3 cents to $3.13 per gallon, and the Midwest price fell more than 2 cents to $3.00 per gallon.

Propane/propylene inventories rise

U.S. propane/propylene stocks increased by 2.9 million barrels last week to 71.1 million barrels as of June 7, 2019, 9.3 million barrels (15.1%) greater than the five-year (2014-2018) average inventory levels for this same time of year. Midwest and Rocky Mountain/West Coast inventories increased by 3.1 million barrels and 0.6 million barrels, respectively. Gulf Coast and East Coast inventories decreased by 0.7 million barrels and 0.1 million barrels, respectively. Propylene non-fuel-use inventories represented 6.8% of total propane/propylene inventories.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

Tags: Brent , consumption/demand , crude oil , inventories/stocks , OPEC , prices , STEO (Short-Term Energy Outlook) , WTI (West Texas Intermediate)

Retail prices (dollars per gallon)

Retail price graphs
  Retail prices Change from last
  06/10/19 Week Year
Gasoline 2.732 -0.075 -0.179
Diesel 3.105 -0.031 -0.161

Futures prices (dollars per gallon*)

Futures price graphs
  Futures prices Change from last
  06/07/19 Week Year
Crude oil 53.99 0.49 -11.75
Gasoline 1.739 -0.063 -0.376
Heating oil 1.825 -0.017 -0.339
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

Stock price graphs
  Stocks Change from last
  06/07/19 Week Year
Crude oil 485.5 2.2 53.0
Gasoline 234.9 0.8 -1.8
Distillate 128.4 -1.0 13.7
Propane 71.134 2.862 20.289