Release date: August 8, 2018 | Next release date: August 15, 2018
Forecast crude oil prices reflect competing price risks
In the August 2018 update of its Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts Brent crude oil prices to average $73 per barrel (b) in the second half of 2018 and decline to an average of $71/b in 2019 (Figure 1). Competing upside and downside price risks are expected to play a large role in price formation during the forecast period. Upside price risks stem largely from the possibility of supply outages when both petroleum inventories and spare crude oil production capacity for members of the Organization of the Petroleum Exporting Countries (OPEC) are lower than average. Downside price risks stem largely from potentially reduced demand because economic growth and resulting crude oil demand could be lower than forecast.
Daily and monthly average crude oil prices could vary significantly from annual average forecasts because global economic developments and geopolitical events in the coming months have the potential to push oil prices higher or lower than the current STEO price forecast.
EIA forecasts total global liquid fuels inventories to decrease by 0.3 million barrels per day (b/d) in 2018, followed by an increase of 0.3 million b/d in 2019 (Figure 2). Inventory changes of this magnitude should be considered mostly balanced, contributing to forecast Brent crude oil prices remaining between $70/b and $73/b from August 2018 through the end of 2019. However, the forecast for slight inventory increases in 2019 contributes to expectations of modest downward price pressure in 2019.
On the supply side, the combination of relatively low inventory and OPEC spare capacity levels elevates the risk of upward price movements if a supply disruption occurs or if forecast production growth does not materialize. Changes in global petroleum inventories data are not collected directly, but are estimated based on forecasts for global production and consumption. However, inventory data for the United States and other countries within the Organization for Economic Cooperation and Development (OECD) are available and may provide insight into global supply. In terms of days of supply, OECD inventories are expected to remain less than the monthly average for the previous five years, so any outages could have a significant effect on crude oil prices (Figure 3).
In 2018 and in 2019, EIA expects OPEC spare crude oil production capacity to decrease from 2017 levels (Figure 4). Although spare capacity in 2016 was lower than that forecast for 2018 and 2019, OECD inventories were higher in 2016, as seen in Figure 3. OPEC spare production capacity is forecast to average 1.6 million b/d in 2018 and to fall to 1.3 million b/d in 2019, down from 2.1 million b/d in 2017 and lower than the 10-year (2008–17) average of 2.3 million b/d. With little spare capacity, risks on the supply side (including greater-than-forecast disruptions in Iran, Venezuela, or Libya) may have significant price impacts.
EIA forecasts OPEC’s petroleum and other liquids production to decrease from the 2017 level of 39.5 million b/d to 39.1 million b/d in 2018 and to 39.0 million b/d in 2019. The small decline in 2019 reflects crude oil production increases from some producers that nearly offset anticipated declines from other OPEC members.
Brent spot prices averaged more than $74/b in June 2018, up $10/b from December 2017. Price increases in 2018 have been largely driven by unplanned supply disruptions and the expected loss of some Iranian crude oil production by the end of the year because of renewed sanctions. The August 2018 STEO reflects the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) and the plan to reinstate sanctions on companies doing business with Iran. Sanctions will likely affect the Iranian oil sector, which would limit the country’s crude oil production and exports by the end of 2018. Uncertainty remains regarding the degree to which the U.S. sanctions will take Iranian crude oil off the market.
Future crude oil production in Venezuela and Libya and the magnitude of the production response from other OPEC members and Russia are also highly uncertain. Developments regarding these and other variables could influence prices in either direction.
Concerns about the pace of future economic and oil consumption growth have likely contributed to demand-side uncertainty. The August STEO forecasts global demand growth for petroleum and other liquids to average 1.66 million b/d in 2018 and 1.57 million b/d in 2019, down from the July STEO forecast of 1.72 million b/d and 1.71 million b/d for 2018 and 2019, respectively.
U.S. average regular gasoline price increases, diesel price decreases
The U.S. average regular gasoline retail price increased less than one cent from last week to remain at $2.85 per gallon on August 6, 2018, up 47 cents from the same time last year. Rocky Mountain and East Coast prices each rose over a penny to $2.92 per gallon and $2.80 per gallon, respectively, and Midwest prices increased less than one cent to $2.77 per gallon. West Coast and Gulf Coast prices each decreased less than one cent to $3.34 per gallon and $2.59 per gallon, respectively.
The U.S. average diesel fuel price decreased less than one cent from last week to $3.22 per gallon on August 6, 2018, 64 cents higher than year ago. Midwest prices fell nearly one cent to $3.15 per gallon, and West Coast, East Coast, and Gulf Coast prices each decreased less than a penny, remaining virtually unchanged at $3.72 per gallon, $3.22 per gallon, and $3.00 per gallon, respectively. Rocky Mountain prices were unchanged at $3.36 per gallon.
Propane/propylene inventories rise slightly
U.S. propane/propylene stocks increased by 0.1 million barrels last week to 66.4 million barrels as of August 3, 2018, 9.3 million barrels (12.2%) lower than the five-year (2013-2017) average inventory level for this same time of year. Gulf Coast inventories increased by 0.3 million barrels and Rocky Mountain/West Coast inventories rose slightly, remaining virtually unchanged. Midwest and East Coast inventories decreased by 0.2 million barrels and 0.1 million barrels, respectively. Propylene non-fuel-use inventories represented 4.3% of total propane/propylene inventories.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 08/06/18 | Week | Year | |
| Gasoline | 2.852 | 0.006 | 0.474 |
| Diesel | 3.223 | -0.003 | 0.642 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 08/03/18 | Week | Year | |
| Crude oil | 68.49 | -0.20 | 18.91 |
| Gasoline | 2.066 | -0.096 | 0.420 |
| Heating oil | 2.127 | -0.028 | 0.478 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 08/03/18 | Week | Year | |
| Crude oil | 407.4 | -1.4 | -68.0 |
| Gasoline | 233.9 | 2.9 | 2.8 |
| Distillate | 125.4 | 1.2 | -22.3 |
| Propane | 66.380 | 0.104 | -1.250 |