Economic woes prompt decline in US EIA's price outlook for oil, petroleum products

Market sentiment over the weakening global economy, inflation and continued banking sector turmoil outweighed concerns about OPEC+'s supply cuts, dragging the outlook for oil, gasoline and diesel prices lower, the US Energy Information Administration said May 9.

The EIA reduced its 2023 forecast for Brent crude by $6.36 to $78.65/b, well below the average $85/b price tag seen in April, in its May Short-Term Energy Outlook. Similarly, the agency forecast WTI crude would average $73.62/b in 2023, down $5.62 from last month's estimate for the year.

Muted OPEC impact

An announcement last month that OPEC+ would cut oil production by 1.2 million b/d starting in May initially sent oil prices up on fears of tightening supplies, but that temporary jump has since given way to lower prices, the EIA said.

While oil output from the producer bloc is expected to fall by 300,000 b/d in 2023 largely due to the voluntary cuts, output from non-OPEC producers is seen driving growth of 1.5 million b/d in global liquid fuels production this year, the agency said.

At the same time, global liquid fuels demand led by China and India is seen rising by 1.6 million b/d in 2023. The agency raised its global oil demand outlook by 120,000 b/d for 2023 to 100.99 million b/d.

The EIA said in its report this demand growth would bring the global oil market into balance between the third quarter of 2023 and first quarter of 2024, pushing the Brent price from current levels back to $75-$80/b.

But the agency expects consistent global oil inventory builds beginning in Q2 2024 as global production outpaces global demand to pressure on crude oil prices. As such, the EIA forecasts Brent in 2024 at $74.47/b, $6.74 below last month's estimate, and WTI at $69.47/b, a $5.74 drop from the prior estimate.

As for the supply and demand picture in 2024, the EIA slightly revised its estimate for global oil demand down 10,000 b/d to 102.71 million b/d, a year-over-year increase of 1.7 million b/d, while global production is seen at 103.02 million b/d. The EIA added it expects output from OPEC in 2024 to grow by 600,000 b/d as the announced production cuts end in 2023.

Summer driving season

With oil prices heading down, the EIA also lowered its forecast for gasoline and diesel prices.

The agency put retail diesel prices at $3.90/gal this year, down 21 cents from the prior estimate, and at $3.62/gal in 2024, a 25 cent drop from April's estimate.

Retail gasoline prices are expected to average $3.33/gal this year, down 9 cents from the EIA's previous estimate, and $3.09/gal in 2024, also a 9-cent dip from the prior month's forecast.

The agency highlighted that summer 2023 retail gasoline prices are seen averaging around $3.40/gal, 20% lower than the summer 2022 average of $4.29/gal.

Retail gasoline prices generally hit their highest levels during the US summer driving season that runs from April through September due to higher demand and the more costly nature of summer-grade fuel needed to comply with federal air pollution rules.

In addition to lower prices at the pump compared with last summer, the EIA also expects less volatility this summer, with gasoline prices ranging from about $3.60/gal in April to about $3.20/gal in September, whereas gasoline prices fell by more than $1/gal last summer from a $4.93/gal peak in June 2022 to $3.70/gal in September 2022.

The EIA partially attributed the expected 40-cent decrease in retail prices over the course of this summer to rising refinery runs abroad and in the US.

"US refinery runs in our forecast reach their highest levels since 2019 as a result of high refinery margins and expanded capacity at ExxonMobil's Beaumont refinery and Marathon Petroleum's Galveston Bay refinery," the agency said. "Despite our expectation of rising refinery runs, US gasoline supply and demand conditions remain tight, which we forecast will keep refinery margins above the five-year average."

The EIA nudged down its 2023 outlook for US oil production by 10,000 b/d to 12.53 million b/d, a 5% increase over output of 11.89 million b/d in 2022. The agency expects output growth to continue into 2024 to put US crude production at 12.69 million b/d, a 60,000 b/d dip from last month's estimate.