In its latest "Short-Term Energy Outlook" released March 12, the U.S. Energy Information Administration increased its short-term crude oil price outlook, but cautioned price upside may be limited.
"OPEC and U.S. production levels, as well as the pace of global oil demand growth, present considerable uncertainty to oil market balances and price expectations," the report said. "Based on the current forecast however, EIA expects global inventory builds and rising OPEC spare capacity will limit significant upward oil price pressures in 2019 and in 2020."
The EIA said it expects West Texas Intermediate spot crude oil prices to decline from an average $65.06 per barrel in 2018 to $56.13/bbl in 2019 before recovering to $58.00/bbl in 2020. The 2019 projection is up 2.4% from the prior forecast, while the 2020 projection remained flat.
In 2018, Brent crude oil averaged $71.19/bbl, and the EIA expects the global benchmark price to decline to $62.78/bbl in 2019, up 2.9% from the prior forecast, before slipping to $62.00/bbl in 2020, in line with the prior forecast.
During 2018, WTI traded at an average $6.13/bbl discount to Brent. In 2019, the government expects that average discount will widen to $6.65/bbl before narrowing to $4/bbl in 2020.
"Recent [Permian] pipeline capacity additions reduced some of the takeaway constraints that developed in the second half of 2018," the report said. "Although EIA expects growing Permian production to face takeaway constraints again in the coming months, EIA expects that the recent capacity additions will prevent price spreads from widening back to the levels reached in the second and third quarters of 2018. EIA expects that new pipelines coming online in the third quarter of 2019 will alleviate the remaining takeaway constraints."
Analysts warn takeaway capacity from the Permian could be overbuilt unless some pipeline companies either combine or cancel their projects.
The EIA forecasts U.S. crude oil production will average 12.3 million bbl/d in 2019 and 13.0 million bbl/d in 2020, with most of the growth coming from the Permian region of Texas and New Mexico. U.S. oil production is estimated to have averaged around 11.9 million bbl/d for the past four months.