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EIA: Crude oil prices to remain low despite expected record US refinery runs

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Essential Energy Insights September 2020

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EIA: Crude oil prices to remain low despite expected record US refinery runs

The U.S. Energy Information Administration offered the first glimpse of its short-term oil price projections for 2020, a year during which it expects oil prices to recover but remain below the levels seen during 2018 despite expected record-level U.S. refinery runs.

In its latest "Short-Term Energy Outlook" released Jan. 15, the EIA said it expects West Texas Intermediate spot crude oil prices to decline from an average $65.06 per barrel in 2018 to $54.19/bbl in 2019 before recovering to $60.76/bbl in 2020.

In 2018, Brent crude oil averaged $71.19/bbl, and the EIA expects the global benchmark price to decline to $60.52/bbl in 2019 before climbing to $64.76/bbl in 2020.

During 2018, WTI traded at an average $6.13/bbl discount to Brent. In 2019, the government expects that average discount will widen to $6.33/bbl before narrowing to $4/bbl in 2020.

The government agency expects tighter marine sulfur standards known as IMO 2020 will "encourage global refiners to increase refinery runs and maximize upgrading of high-sulfur heavy fuel oil into low-sulfur distillate fuel to create compliant bunker fuels" and to drive U.S. refinery runs to a record level of 17.9 million barrels per day on average in 2020 for an average utilization rate of 96%.

"One of the most significant impacts from regulations will be on diesel wholesale margins, which increase from an average of 43 cents per gallon in 2018 to 48 cents/gal in 2019 and then to 65 cents/gal in 2020," the report said. "Because of the numerous and diverse set of decisions involved in complying with the regulation and the global nature of the regulation, significant uncertainty exists about the forecast outcomes of the regulation."

The EIA noted that during the five-day period ending Jan. 10, futures and options trading "suggest that a range of $28/[bbl] to $101/[bbl] encompasses the market expectation for December 2019 WTI prices at the 95% confidence level."