U.S. Energy Information Administration - EIA - Independent Statistics and Analysis

Petroleum & Other Liquids

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This Week in Petroleum

Release date: September 12, 2018 | Next release date: September 19, 2018

Tighter crude oil markets contribute to higher forecast prices

In the September 2018 update of its Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) increased the forecast price for the Brent spot price to $73 per barrel (b) in 2018 and $74/b in 2019. EIA expects West Texas Intermediate (WTI) crude oil prices will average about $6/b lower than Brent prices in 2018 and in 2019 (Figure 1).

In early August, crude oil prices fell as significant declines in some emerging market currencies may have contributed to increased concerns about global economic growth and its potential effect on oil demand. However, oil prices rose in the second half of August following reports of reduced purchases of Iranian crude oil ahead of the United States reinstituting sanctions on Iran in November. Other supply developments likely contributed to tighter oil inventories, which contributed to higher prices. A restart of some Canadian production after July's oil sands outage is expected to be delayed until September, and tropical storm activity in the U.S. Gulf of Mexico led to the shutdown of some offshore crude oil platforms. Global petroleum inventories were estimated to have declined by almost 0.4 million barrels per day (b/d) in August, the seventh consecutive month of net inventory withdrawals.

Reflecting the tighter supply, EIA increased its fourth-quarter 2018 Brent crude oil price forecast by almost $4/b to $76/b and increased the WTI price forecast by more than $3/b to $68/b. EIA forecasts the 2019 Brent crude oil price to average $74/b and the WTI crude oil price to average $67/b. Both forecasts are $3/b higher than the forecast in the August STEO.

The increase in expected 2019 crude oil prices reflects a lower forecast for global oil supply in 2019 that is only partially offset by a lower forecast for oil demand next year. Although crude oil prices in the September forecast are higher compared with the August forecast, monthly average Brent crude oil prices remain relatively flat between $72/b and $76/b from September 2018 through the end of 2019 and reflect relatively stable inventory levels.

EIA forecasts total global liquid fuels inventories to decrease by 0.4 million b/d in 2018 compared with 2017, followed by an increase of 0.1 million b/d in 2019 (Figure 2). The September STEO forecast for inventory draws of 0.4 million b/d in 2018 is an increase of 0.2 million b/d compared with the August forecast, and the inventory builds of 0.1 million b/d in 2019 are 0.2 million b/d smaller than the August forecast. Changes to the timing and impact of the sanctions on Iran and to U.S. crude oil production are driving the changes to the forecast global balances.

Figure 2. World fuel production and consumption

Because the effects of sanctions on Iran are taking hold earlier than previously forecasted, production from the Organization of the Petroleum Exporting Countries (OPEC) has been revised downward in the September STEO. Third-party ship tracking data indicate that several countries may have already reduced purchases of Iranian crude oil, and August estimates of waterborne crude oil exports from Iran are 19% lower than the average for the first seven months of 2018. EIA estimates that Iranian crude oil production declined 0.2 million b/d from July to August. However, if the reduction in Iranian crude oil production and exports is larger than expected, the disruption to the crude oil market in the fourth quarter of 2018 could result in price increases.

OPEC production for crude oil and liquid fuels is forecast to be 38.6 million b/d in the fourth quarter of 2018, down slightly from the August forecast of 38.7 million b/d. EIA forecasts production in 2019 to be 39.0 million b/d, a decrease of less than 0.1 million b/d compared with the August forecast.

EIA forecasts that U.S. crude oil production will average 10.7 million b/d in 2018, up from 9.4 million b/d in 2017, and will increase to 11.5 million b/d in 2019, which is 0.2 million b/d lower than forecast in the August STEO. The lower expected crude oil production reflects more severe constraints in Permian region pipeline takeaway capacity than previously expected, which results in slower expected crude oil production growth in that region. However, EIA still expects Permian crude oil production to drive total U.S. production growth next year. The lower forecast also resulted from a reevaluation of potential projects in the U.S. Gulf of Mexico. Production in that region is now expected to be slightly lower than previously assumed.

U.S. average regular gasoline and diesel prices increase

The U.S. average regular gasoline retail price increased nearly 1 cent from last week to $2.83 per gallon on September 10, 2018, up 15 cents from the same time last year. Gulf Coast prices increased over two cents to $2.57 per gallon, East Coast prices rose over one cent to $2.79 per gallon, West Coast and Midwest prices each increased nearly one cent to $3.34 per gallon and $2.74 per gallon, respectively, and Rocky Mountain prices increased less than one cent, remaining virtually unchanged at $3.01 per gallon.

The U.S. average diesel fuel price increased nearly 1 cent from last week to $3.26 per gallon on September 10, 2018, 46 cents higher than a year ago. East Coast prices rose more than one cent to $3.25 per gallon, West Coast and Rocky Mountain prices increased less than a cent to $3.75 per gallon and $3.37 per gallon, respectively, and Midwest and Gulf Coast prices increased less than a cent, remaining virtually unchanged at $3.19 per gallon and $3.04 per gallon, respectively.

Propane/propylene inventories rise

U.S. propane/propylene stocks increased by 1.2 million barrels last week to 74.6 million barrels as of September 7, 2018, 9.0 million barrels (10.8%) lower than the five-year (2013-2017) average inventory level for this same time of year. Gulf Coast, Rocky Mountain/West Coast, Midwest, and East Coast inventories increased by 0.7 million barrels, 0.3 million barrels, 0.2 million barrels, and 0.1 million barrels, respectively. Propylene non-fuel-use inventories represented 3.8% of total propane/propylene inventories.