May 2016 Financial News

EIA forecasts oil at US$51 in 2017

May 12, 2016

The United States Energy Information Agency is now forecasting that global crude oil prices will now average US$41 a barrel in 2016 and rise to US $51 a barrel in 2017.

If it holds, it will be good news for Finance Colm Imbert who was, last month, forced to revise the crude price on which the 2016 budget was based to US $35 a barrel from an original price of US$45 a barrel.

The EIA forecast, which was released on Tuesday as part of its short term energy outlook, shows oil prices averaging in 2016 US$6 higher than was forecast just a month ago and US$10 higher in 2017 than was predicted in April.

It said the increased optimism of improved global oil prices is due to: improving economic date indications that global oil demand growth is accelerating; ongoing declines in the US rig count and crude oil production; and growing oil supply outages.

The report noted that North Sea Brent crude oil prices averaged US$42/barrel (b) in April, a US$3/b increase from March. Improving economic data, growing supply disruptions, and falling US crude oil production and rig counts contributed to the price increase.

The ongoing tar sands fire in Canada and oil production curtailment in Libya have also taken pressure off storage capacity in the near term.

“Brent crude oil prices are forecast to average US$41/b in 2016 and US$51/b in 2017, US$6/b and $10/b higher than forecast in last month’s STEO, respectively. West Texas Intermediate (WTI) crude oil prices are forecast to average slightly less than Brent in 2016 and to be the same as Brent in 2017,” the report read.

Tuesday’s report showed that Brent crude oil spot prices increased by US$3/b in April to a monthly average of US$42/b, which was the highest monthly average for Brent so far this year. This the report noted was the third consecutive increase in the monthly average Brent price, the longest such stretch since April-June 2014.

The EIA said that despite the recent increase in prices, EIA expects global oil inventory builds to average 0.9 million b/d in the second and third quarters of 2016, limiting upward price pressures in the coming months.

“Brent prices are expected to average US$42/b in the second and third quarters of 2016, before rising to US$44/b in the fourth quarter as a result of slowing global oil inventory growth. EIA expects global oil inventory draws to begin in the third quarter of 2017.

“The expected inventory draws contribute to forecast rising prices in the first half of 2017, with price increases expected to accelerate later in 2017. Brent prices are forecast to average US$51/b in 2017, US$10/b higher than forecast in last month’s STEO. Forecast Brent prices reach an average of US$57/b in the fourth quarter of 2017, reflecting the potential for more significant inventory draws beyond the forecast period.”

The EIA noted that the current values of futures and options contracts suggest high uncertainty in the price outlook. For example, EIA’s forecast for the average WTI price in August 2016 of $42/b should be considered in the context of Nymex contract values for August 2016 delivery. These contracts traded during the five-day period ending May 5 suggest the market expects WTI prices to range from $32/b to $65/b (at the 95% confidence interval) in August 2016.

“The higher oil price forecast in this month’s STEO compared with the April STEO largely reflects tighter market balances, particularly for the second half of 2017, based on a stronger outlook for global oil consumption.

“Higher oil consumption data in nonOECD Asia, supported by economic data, contributed to upward revisions for global oil consumption growth of 0.3 million b/d and 0.2 million b/d in 2016 and 2017, respectively. Previously, the pace of economic growth and related oil demand growth had been considered one of the main downside risks to oil prices in the forecast period, and although economic risks remain, they are lower than previously assumed.”

While crude oil prices are less important to the country’s economy than natural gas prices, there is a global co-relation between natural gas prices and crude oil prices in many of the country’s markets.

In addition, while Atlantic LNG has been able to successfully diversify its exports away from the US markets several Latin American countries are aligning this markets for LNG with the US and therefore the Henry Hub prices remain important to T&T.

In that context, the US natural gas production remains crucial and according the to the EIA natural gas production was 80.1 billion cubic feet per day (Bcf/d) in February 2016, according to, which is the secondhighest production level on record and an increase of 1.4 per cent from January.

Growth was strongest in the Marcellus and Utica production areas. Production in Pennsylvania (measured in Bcf/d) increased by 3.5 per cent from January levels, and production in Ohio and West Virginia increased by 10.7 per cent and by 1.7 per cent respectively.

However, preliminary data since February indicate production growth may be slowing because of reduced drilling activity in response to low natural gas prices.

 

Source:
Business Guardian, BG9
Thursday May 12, 2016