US EIA lowers Brent oil price forecast for 2024

The US Energy Information Administration (EIA) cut its 2024 Brent spot price forecast in its latest Short-Term Energy Outlook (STEO), which was released this week.

According to the June STEO, the EIA now sees Brent spot prices averaging $84.15 per barrel this year. In the previous STEO in May, the EIA projected the Brent spot price to average $87.79 per barrel in 2024. The Brent spot price forecast for 2025 was $85.38 per barrel in both STEOs.

In its most recent outlook, the EIA forecast the Brent spot price to average $83.71 per barrel in the second quarter of 2024, $83.25 per barrel in the third quarter and $86.64 per barrel in the fourth trimester. The EIA’s previous STEO expected the commodity to reach $89.30 a barrel in the second quarter, $90 a barrel in the third quarter and $88.67 a barrel in the fourth quarter.

The Brent spot price averaged $82.96 a barrel in the first quarter of 2024 and $82.41 a barrel in 2023, according to both STEOs.

The EIA noted in its latest STEO that the spot price of Brent crude averaged $82 per barrel in May, which it noted was down $8 per barrel from April. Daily spot prices initially fell following the June 2 OPEC+ announcement, closing at $78 a barrel on June 6, the EIA said in its report.

“The extension of OPEC+ cuts through 3Q24 has led us to lower our forecast for OPEC+ oil production for the remainder of 2024,” EIA said in the report.

“We expect lower OPEC+ output for the rest of this year to push Brent prices to an average of $85 per barrel in the second half of 2024 (2H24). Due to lower OPEC+ production, we expect more oil to be pulled from global stocks in 2H24 than we did last month,” it added.

“Despite several inventory draws in this month’s forecast, we have lowered our expectations for the average annual price of Brent in 2024 compared to the May STEO to reflect the lower starting point of the forecast resulting from the recent decline in prices”, he continued.

The EIA noted in its June STEO that, in its May outlook, it “assumed that OPEC+ will begin to relax some voluntary production cuts beginning in 3Q24.”

“We now expect OPEC+ not to start easing voluntary cuts until 4Q24, in line with the group’s recent announcement,” it added.

“Although crude oil prices initially fell following the OPEC+ announcement, we expect the extension of all voluntary cuts through 3Q24 will cause global oil inventories to fall further through 1Q25 and put upward pressure on oil prices over that period,” he it continued.

Global oil inventories fell by about 0.3 million barrels per day in the first half of 2024, the EIA said in its June STEO, adding that they were expected to fall by an average of 0.6 million barrels per day day from 3Q24 to 1Q25.

“Following the start of the phasing out of OPEC+ voluntary supply cuts in Q424 and supported by continued supply growth from non-OPEC+ countries, we expect global oil supply growth to outpace global oil demand growth, returning the market to moderate growth of stocks. for most of 2025,” the EIA said.

“We forecast that global oil inventories will start to rise by an average of 0.4 million barrels per day in T225 and rise by 0.6 million barrels per day in the second half of 2025,” it added.

“As a result, we expect oil prices to rise to an average of $87 per barrel in 4Q24 and $88 per barrel in 1Q25. As global oil inventories rise through most of 2025, we expect Brent crude prices to gradually decline to an average of $83 per barrel by 4Q25,” he continued.

The oil price overshoot has been corrected

In a report sent to Rigzone by Standard Chartered Bank’s head of commodity research Paul Horsnell on Tuesday evening, analysts at Standard Chartered, including Horsnell, said that “the $5-per-barrel oil price following various meetings of OPEC+ producers on June 2, it was corrected”.

“We previously argued that the initial price decline was largely due to speculative moves and algorithmic trading,” the analysts added in the report.

“We believe hedge funds’ rapid move to the short side was partly fueled by initial analysis that focused solely on future supply increases without placing them in the context of overall market balances,” they noted.

“We believe the market can absorb the additional barrels planned by OPEC+ producers. In addition, our market balances imply significant supply shortfalls through H2-2025, with a particularly large shortfall of 1.9 million bpd in Q3-2024,” they continued.

In the report, analysts say unusually large speculative shorting of Brent has been a key feature of the oil market in recent weeks.

“The latest CFTC and ICE positioning data reveal that the decline in funds intensified after the OPEC+ meetings on June 2,” analysts said.

“Our Money Manager Positioning Index for ICE Brent fell 48.1 weeks on the week to a high of -100.0 for the first time since March 2020 at the start of the pandemic,” they added.

“Money managers’ net longs in ICE Brent are just 1.51 percent of open interest, a record high since 2010. Net selling of the contract was also a record high; at 103.9 million barrels, it was 22.8 million barrels higher than any week during the pandemic,” they continued.

The analysts went on to say that net sales over the past five weeks stood at 273.3 million barrels, “another record and 52.5 million barrels more than the heaviest five-week period of selling during the pandemic.”

In its latest report, Standard Chartered forecasts that ICE Brent crude futures will average $98 per barrel in the third quarter of 2024 and $106 per barrel in the fourth quarter. Standard Chartered expects 2025 ICE Brent crude to average $109 per barrel, according to the report.

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