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EIA cuts oil price outlook as US-China trade war intensifies

The U.S. Energy Information Administration lowered its crude oil price outlook through 2020 on the heels of the latest salvos in a trade war between the U.S. and China.

China allowed its currency to weaken past 7 yuan per dollar for the first time in 11 years after President Donald Trump's Aug. 1 decision to impose a 10% tariff on the $300 billion of imported Chinese goods not currently subject to levies.

In its latest "Short-Term Energy Outlook," the EIA, noting that crude oil prices declined more than 7% after Trump announced the latest round of tariffs, projected West Texas Intermediate spot crude oil prices to decline from an average $65.06 per barrel in 2018 to $57.87/bbl in 2019 before climbing to $59.50/bbl in 2020. The 2019 projection is down 2.9% from the prior forecast, while the 2020 projection down 5.6%.

In 2018, Brent crude oil averaged $71.19/bbl. The EIA expects the global benchmark price to decline to $65.15/bbl in 2019, down 2.0% from the prior forecast, before sliding to $65.00/bbl in 2020, down 3.0% from the prior forecast.

"Continued Middle East tensions presented risks of supply disruptions and higher crude oil prices," the EIA said. "But crude oil transit in the region has not been significantly disrupted to date. … The combination of oil supply disruption risk and lower economic growth expectations creates uncertainty in the pace of global oil inventory withdrawals and prices. … Prices could break out of the mid-$60 [per barrel] range if the supply or demand concerns materialize in the coming months."

The EIA said U.S. crude oil production averaged a record 10.99 million barrels per day in 2018 as December 2018 production reached 11.96 million bbl/d, the highest level in U.S. history. The EIA forecast that U.S. crude oil production will average 12.27 million bbl/d in 2019 and 13.26 million bbl/d in 2020, with most of the growth coming from the Permian Basin region of Texas and New Mexico.

During 2018, West Texas Intermediate traded at an average $6.13/bbl discount to Brent. The government expects the average discount to widen to $7.28/bbl in 2019 before narrowing to $5.50/bbl in 2020.