Geopolitical uncertainty and the ongoing impact of the pandemic led to increased oil price volatility and contributed to a more than $4/b rise in the US Energy Information Administration's 2022 oil price expectations, the agency said June 7.
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The EIA in its June Short-Term Energy Outlook now sees WTI averaging $102.47/b in 2022, up $4.27/b from its prior estimate in May and expects Brent to average $107.37/b in 2022, up $4.02/b from the prior month. The EIA expects WTI at $93.24/b in 2023 and sees Brent at $97.24/b, both unchanged from the prior month.
"We continue to see historically high energy prices as a result of the economic recovery and the repercussions of Russia's full-scale invasion of Ukraine," EIA Administrator Joe DeCarolis said in a statement. "Although we expect the current upward pressure on energy prices to lessen, high energy prices will likely remain prevalent in the US this year and next."
Already-high crude oil prices rose further as Shanghai and Beijing began easing COVID-19 restrictions end-May and the EU announced plans to cut its Russian oil imports by 90% by the year's end.
"Actual price outcomes will largely depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia's oil production or the sale of Russia's oil in the global market," the agency said in its report.
The EIA forecast Russia's total liquid fuels production to fall to 9.3 million b/d by end-2023, from 11.3 million b/d at the start of 2022. Those estimates assume the EU's ban on seaborne crude oil from Russia will be imposed in six months and the region's import ban on petroleum products will go into effect in eight months. The agency said that its forecast, finalized June 2, did not incorporate restrictions on shipping insurance as those details were not available at the time.
"The possibility that these sanctions or other potential future sanctions reduce Russia's oil production by more than expected creates upward risks for crude oil prices during the forecast period," the agency said.
Pain at the pump continues
High oil prices are continuing to cause pain at the pump for US drivers. The EIA forecast retail gasoline prices in 2022 to average $4.07/gal, up 25 cents from its prior estimate in May. The agency put retail diesel prices at an average $4.69/gal over the same period, down 3 cents from May.
The EIA attributed rising gasoline and diesel prices to refining margins at or near record highs amid low inventory levels. But it forecast gasoline wholesale margins -- the price difference between wholesale gasoline and Brent crude -- to fall 36 cents to an average 81 cents/gal over May and the third quarter, and diesel wholesale margins to decline 46 cents to $1.07/gal during the same period.
High wholesale products margins are seen putting US refinery utilization at or near its highest levels in the past five years, the EIA said. The agency does not see total refinery output of oil products reaching a five-year high, because operable refining capacity in the US is about 900,000 b/d lower than at the end of 2019.
The EIA forecast third quarter refinery utilization to average 94% and asserted that such high utilization would "help bring wholesale margins down from record levels."
The EIA expects fuel prices to ease in 2023, though it raised its expectations by 15 cents for retail gasoline prices to $3.66/gal and by 8 cents for diesel to $4.14/gal in 2023.
Output nearing pre-pandemic levels
The EIA slightly increased its global oil demand estimate for 2022 by 20,000 b/d to 99.63 million b/d. But it lowered its global demand forecast for 2023 by 230,000 b/d to 101.32 million b/d.
The agency marginally raised its 2022 outlook for US oil production by 10,000 b/d to 11.92 million b/d. The EIA's 2023 estimate for US oil production increased by 120,000 b/d to 12.97 million b/d and would surpass the previous record for annual average output of 12.3 million b/d set in 2019.
The EIA also estimated that world production of petroleum and other liquids returned to within 1% of the pre-pandemic level in March 2020.
The agency's report reflected a June 2 announcement by OPEC+ of upward adjustments to the group's July and August production targets. The EIA now expects OPEC crude oil production to average 29.2 million b/d in second-half 2022, up 800,000 b/d from the first half of the year.
The EIA estimated OPEC crude production to average 29.09 million b/d in the third quarter of 2022, down 180,000 b/d from its prior estimate but still the highest output since the second quarter of 2019.