Why the EIA decreased crude oil price estimates
How EIA estimates, oil price, and production are related (Part 3 of 12)
EIA pushes crude price estimates down
In the first two parts of this series, we discussed crude oil production and consumption estimates. In this article, we’ll discuss crude oil prices in the United States.
The U.S. Energy Information Administration (or EIA) released its December Short-Term Energy Outlook (or STEO). From its high in June, West Texas Intermediate (or WTI) has fallen by more than 45% until now. It expects WTI crude to average ~$75.00 per barrel in 4Q14, or 25% lower than $100.46 per barrel in 2013.
The latest price projection is 6% lower than the EIA’s last month projection for 4Q14.
For 2015, the EIA expects the WTI price to average $63.00 per barrel. This is 17% lower than November STEO estimates.
The EIA projects that the Brent crude oil price will average $68 per barrel in 2015, or $15 per barrel lower than November’s forecast. Higher crude oil inventories around the world are expected to keep the Brent crude price pinned down in 1H15 while improving in the second half of next year as some pressure is expected to be released. The Brent crude oil price reflects the international price for US oil producers.
Why Brent crude price can go down
The primary factors contributing to the lower Brent price projections are weakening global demand and rising global inventories. On top of that, excess production in the Organization of the Petroleum Exporting Countries (or OPEC), primarily in Saudi Arabia, is expected to average 2.1 million barrels per day (or MBbl/d) in 2014 and 2.5 MBbl/d in 2015. Excess production and lower-than-expected demand have actually pushed Brent low, leaving the WTI-Brent spread narrower.
Lower WTI crude will hurt US oil producers’ profitability. These companies include Whiting Petroleum (WLL), Halcon Resources (HK), Laredo Petroleum (LPI), and Pioneer Natural Resources (PXD). Most of these companies are components of the Energy Sectors Select SPDR ETF (XLE).
Crude oil prices have been volatile. Read the next section to know how this affects production and price. Also read the next part of this series to know the EIA’s gasoline price estimates.
Read our series How far can crude oil prices fall? to know the latest on crude oil prices.
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