The U.S. Energy Information Administration lowered its crude oil price outlook through 2020 as manufacturing indicators that may point to slowing global economic growth outweigh risks to global oil supplies.
Oil prices surged following a Sept. 14 attack on Saudi oil infrastructure that knocked more than 5% of global supply offline, but prices retreated when the Saudis pointed to a quick recovery from the attack.
In its latest "Short-Term Energy Outlook," the EIA projected that West Texas Intermediate spot crude oil prices will decline from an average of $65.06 per barrel in 2018 to $56.26/bbl in 2019 then to $54.43/bbl in 2020. The 2019 projection is down 0.1% from the prior forecast, while the 2020 projection is down 3.7%.
In 2018, Brent crude oil averaged $71.19/bbl. The EIA expects the global benchmark price to decline to $63.37/bbl in 2019, down 2 cents from the prior forecast, before sliding to $59.93/bbl in 2020, down 3.3% from the prior forecast.
The EIA set its latest outlook "against a backdrop of competing risks. On one hand, this forecast recognizes a higher level of oil supply disruption risk than previously assumed. However, risks that economic growth will be lower than forecast, which could cause oil demand to be weaker than expected, have also increased in the past weeks, notably in contractionary manufacturing indicators from the United States and Germany."
"The fact of the matter is that geopolitical risk is just not in this market even though we've seen these attacks," Citigroup Managing Director and global head of commodity research Edward Morse said at an Oct. 8 event unveiling the EIA's Winter Energy Outlook. "That's because market sentiment has been focused on all of the weak aspects of the market. The markets just don't want to believe that there's no spare capacity or that markets are vulnerable."
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 12.26 million bbl/d in 2019 and 13.17 million bbl/d in 2020, with most of the growth coming from the Permian Basin.
During 2018, West Texas Intermediate traded at an average $6.13/bbl discount to Brent. The government expects the average discount to widen to $7.11/bbl in 2019 before narrowing to $5.50/bbl in 2020.
