US EIA lowers Brent oil price forecasts

The US Energy Information Administration (EIA) lowered its Brent oil price forecast for 2024 and 2025 in its latest Short-Term Energy Outlook (STEO), which was released recently.

In the May STEO, the EIA projected that the Brent spot price would average $87.79 per barrel in 2024 and $85.38 per barrel in 2025. The EIA projected in the STEO that the commodity would average 89.30 USD per barrel in the second quarter, USD 90 per barrel in the third quarter, USD 88.67 per barrel in the fourth quarter, USD 88 per barrel in the first quarter of 2025, USD 86 per barrel in the second quarter, USD 85 per barrel in the third quarter and $82.66 per barrel in the fourth quarter of next year.

In the previous STEO, which was released in April, the EIA forecast that Brent spot prices would average $88.55 a barrel this year and $86.98 a barrel next year. In that STEO, the EIA forecast the commodity to reach $89.97 a barrel in the second quarter, $91.34 a barrel in the third quarter, $89.67 a barrel in the fourth quarter, $88.34 a barrel in the barrel in the first quarter of next year, $87. per barrel in the second and third quarters and $85.66 per barrel in the fourth quarter.

In its latest STEO, the EIA pointed out that the spot price of Brent crude averaged $90 a barrel in April, which it noted was up $5 a barrel from March and the fourth consecutive monthly increase.

“However, daily spot crude oil prices have since declined, with the Brent spot price settling at $84 a barrel on May 2,” the EIA said in the STEO, adding that prices rose in April due to lower global oil stocks.

“Geopolitical tensions also supported crude oil prices amid the conflict between Iran and Israel, which added uncertainty to already heightened tensions in the Middle East,” the EIA said in its May STEO.

“Despite these tensions, crude oil price volatility has been dampened for much of this year by significant crude oil production capacity,” it added.

“If holders of unused production capacity choose to deploy it, supply can be available to the oil market in the event of any short-term supply disruption,” it continued.

In the STEO, the EIA estimated that OPEC’s spare production capacity will be around four million barrels per day by 2025. It also estimated that OPEC+ voluntary production cuts reduce global oil stocks in the first half of 2024 and estimated that global oil stocks are declining. with an average of 0.3 million barrels per day in the first half of the year.

“We estimate that some OPEC+ producers will continue to curb production after the current OPEC+ voluntary cuts expire at the end of June,” EIA said in the STEO.

“Our expectation of continued production restraint drives our forecast of a relatively balanced oil market in 2H24, which we expect to keep oil prices close to $90 per barrel for the rest of 2024, before stronger supply growth to contribute to the global oil stockpile increase of 0.4 million. barrels per day in 2025, causing prices to fall to an average of $85 per barrel next year,” it added.

“However, significant uncertainty remains centered around ongoing developments in the Middle East, which have the potential to increase oil price volatility and lead to sharp increases in oil prices,” the EIA warned.

In a report sent to Rigzone last week, analysts at Standard Chartered noted that Brent prices fell sharply on May 1, “with the loss sustained in the following days.”

“The front-month contract hit an eight-week low of $82.41 a barrel in early trading on May 7. Brent for July delivery fell $3.87 a barrel on the week to settle at $83.33 a barrel on May 6.” they added.

“The main price in the first month was lower weekly by $5.07 per barrel, given the backward expiration of the June contract,” they continued.

In that report, the analysts warned that, in the very short term, their machine learning oil price model “indicates that the decline in prices has the potential to continue a bit further.”

“It indicates a weekly decline of $1.15 per barrel, with a negative volatility relationship with price playing a particularly marked role for the weekly change for May 13 settlement,” they added.

Standard Chartered estimated in the report that the ICE Brent futures price will average $98 per barrel in the third quarter of this year, $106 per barrel in the fourth quarter, $107 per barrel in the first quarter of 2025, $103 per barrel in the second quarter and $111 per barrel in the third quarter.

The company estimated in the report that the price of ICE Brent futures will reach $109 per barrel total in 2025, $128 per barrel total in 2026 and $115 per barrel total in 2027.

In another report sent to Rigzone last week, Macquarie strategists said they expected Brent to remain limited between $80 and $90 into the second quarter.

“At this point, we think there is a better chance of oil falling below $80 versus steadily rising above $90, given the slow but steady march toward a ceasefire and increasingly strong fundamentals bears,” they added.

“After 2Q24, we anticipate oil will turn bearish due to increased NOPEC supply, OPEC+ spare capacity coming back into the market and demand disappointment from stubborn inflation,” they continued.

In a report sent to Rigzone earlier this month, analysts at JP Morgan revealed that their May Brent fair value was unchanged at $88 a barrel.

“April averaged $89 versus our fair value of $86,” analysts noted in that report.

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