Friday, January 29, 2016
The Energy Information Administration’s (EIA) January “Short-Term Energy Outlook” forecasts that Brent crude oil prices will average $40/bbl this year and $50/bbl in 2017. Forecast West Texas Intermediate (WTI) crude oil
prices average $2/bbl lower than Brent in 2016 and $3/bbl lower in 2017. However, the current values of futures and options contracts continue to suggest high uncertainty in the price outlook.
For example, EIA forecast for the average WTI price in April 2016 of $37/bbl should be considered in the context of recent contract values for April 2016 delivery, suggesting that the market expects WTI prices to range from $25/bbl to $56/bbl at a 95% confidence interval. WTI futures contracts and options are among the most actively traded commodity derivative products, with many producers, consumers—including refiners, airlines, trucking companies, and fuel distributors—and other investors and risk-takers involved. Therefore, the confidence interval is a market-derived range that is not directly dependent on EIA’s supply and demand estimates.
Continuing increases in global liquids inventories have put significant downward pressure on oil prices since mid-2014. EIA estimates that global oil inventories increased by 1.9 MMbbld in 2015, marking the second consecutive year of inventory builds. This oversupply has contributed to an additional 0.7 MMbbld in 2016, before the global oil market becomes relatively balanced in 2017. The first draw on global oil inventories in 15 consecutive quarters is expected in the third quarter of 2017.
EIA estimates that petroleum and other liquid fuels production in countries outside OPEC grew by 1.3 MMbbld in 2015. The 2015 growth occurred mainly in North America. EIA expects non-OPEC production to decline by 0.6 MMbbld in 2016, which would be the first decline since 2008. Most of the forecast decline in 2016 is expected to be in the U.S. Non-OPEC production is forecast to decrease by an additional 0.1 MMbbld in 2017. Changes in non-OPEC production are driven by changes in U.S. tight oil production, which is characterized by high decline rates and relatively short investment horizons that make it among the more price-sensitive crude production globally. Forecast total U.S. liquid fuels production declines by 0.4 MMbbld in 2016 and remains relatively flat in 2017.
Forecast OPEC crude oil production increases by 0.5 MMbbld in 2016, with Iran expected to increase production now that international sanctions targeting its oil sector have been suspended. Iran’s crude oil production is forecast to grow by about 0.3 MMbbld in 2016 and by 0.5 MMbbld in 2017. The growth of Iran’s crude production through the forecast period also depends on internal factors, including the nation’s ability to mitigate production decline rates and meet technical challenges, and on its willingness to discount the price of oil.
In addition, at OPEC’s December meeting, members voted to reactivate Indonesia’s OPEC membership after a near seven-year hiatus. EIA therefore includes Indonesia’s crude oil and other liquids production in the OPEC total for both history and the forecast. EIA expects global consumption of petroleum and other liquids fuels to grow by 1.4 MMbbld in both 2016 and 2017. Forecast real gross domestic product (GDP) for the world weighted by oil consumption, which increased by an estimated 2.4% in 2015, rises by 2.7% in 2016 and by 3.2% in 2017.
prices average $2/bbl lower than Brent in 2016 and $3/bbl lower in 2017. However, the current values of futures and options contracts continue to suggest high uncertainty in the price outlook.
For example, EIA forecast for the average WTI price in April 2016 of $37/bbl should be considered in the context of recent contract values for April 2016 delivery, suggesting that the market expects WTI prices to range from $25/bbl to $56/bbl at a 95% confidence interval. WTI futures contracts and options are among the most actively traded commodity derivative products, with many producers, consumers—including refiners, airlines, trucking companies, and fuel distributors—and other investors and risk-takers involved. Therefore, the confidence interval is a market-derived range that is not directly dependent on EIA’s supply and demand estimates.
Continuing increases in global liquids inventories have put significant downward pressure on oil prices since mid-2014. EIA estimates that global oil inventories increased by 1.9 MMbbld in 2015, marking the second consecutive year of inventory builds. This oversupply has contributed to an additional 0.7 MMbbld in 2016, before the global oil market becomes relatively balanced in 2017. The first draw on global oil inventories in 15 consecutive quarters is expected in the third quarter of 2017.
EIA estimates that petroleum and other liquid fuels production in countries outside OPEC grew by 1.3 MMbbld in 2015. The 2015 growth occurred mainly in North America. EIA expects non-OPEC production to decline by 0.6 MMbbld in 2016, which would be the first decline since 2008. Most of the forecast decline in 2016 is expected to be in the U.S. Non-OPEC production is forecast to decrease by an additional 0.1 MMbbld in 2017. Changes in non-OPEC production are driven by changes in U.S. tight oil production, which is characterized by high decline rates and relatively short investment horizons that make it among the more price-sensitive crude production globally. Forecast total U.S. liquid fuels production declines by 0.4 MMbbld in 2016 and remains relatively flat in 2017.
Forecast OPEC crude oil production increases by 0.5 MMbbld in 2016, with Iran expected to increase production now that international sanctions targeting its oil sector have been suspended. Iran’s crude oil production is forecast to grow by about 0.3 MMbbld in 2016 and by 0.5 MMbbld in 2017. The growth of Iran’s crude production through the forecast period also depends on internal factors, including the nation’s ability to mitigate production decline rates and meet technical challenges, and on its willingness to discount the price of oil.
In addition, at OPEC’s December meeting, members voted to reactivate Indonesia’s OPEC membership after a near seven-year hiatus. EIA therefore includes Indonesia’s crude oil and other liquids production in the OPEC total for both history and the forecast. EIA expects global consumption of petroleum and other liquids fuels to grow by 1.4 MMbbld in both 2016 and 2017. Forecast real gross domestic product (GDP) for the world weighted by oil consumption, which increased by an estimated 2.4% in 2015, rises by 2.7% in 2016 and by 3.2% in 2017.
