The U.S. Energy Information Administration increased its 2020 crude oil price outlook by more than 7%, citing intensifying geopolitical risks, OPEC production cuts and favorable macroeconomic trends.
On Jan. 2, the U.S. killed a leading Iranian military commander in Iraq, and Iran responded five days later by targeting U.S. bases in Iraq with a volley of ballistic missiles. In response to the direct conflict between the U.S. and Iran, analysts increased their crude oil price outlooks. The EIA noted that front-month Brent crude oil prices traded above $70 per barrel "for short periods during each day" from Jan. 5-7, "a level not seen since the September 14 attack on Saudi Aramco facilities at Abqaiq and Khurais."
"EIA assumes that OPEC will limit production through all of 2020 and 2021 to maintain relatively balanced global oil markets," the agency wrote Jan. 14. "The conclusion of phase one of a trade deal between the United States and China to be signed on January 15, as well as improved macroeconomic indicators such as the Atlanta Federal Reserve's GDPNow forecast and the Blue Chip Economic Indicators survey suggest an improved economic outlook."
In its latest "Short-Term Energy Outlook," the EIA projected that West Texas Intermediate spot crude oil prices will climb from an average of $57.02/bbl in 2019 to $59.25/bbl in 2020 before averaging $62.03/bbl in 2021. The 2020 projection is up 7.7% from the prior forecast.
In 2019, Brent crude oil averaged $64.36/bbl. The EIA expects the global benchmark price to increase to $64.83/bbl in 2020, up 7.1% from the prior forecast, before climbing to $67.53/bbl in 2021.
According to the EIA, U.S. crude oil production averaged a record 12.24 million barrels per day in 2019. The EIA forecast that U.S. crude oil production will average 13.30 million bbl/d in 2020 and 13.71 million bbl/d in 2021.
During 2019, WTI traded at an average $7.34/bbl discount to Brent. The government expects the average discount to narrow to $5.58/bbl in 2020 before continuing lower to $5.50/bbl in 2021.