The US Energy Information Administration on Tuesday nearly tripled its forecast for the 2015 Brent-WTI spread to $7.35/b, largely due to a glut of US crude production.
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The 2015 spread, which EIA in February forecast would be $2.54/b, was widened due to "continuing large builds in US crude oil inventories, including at the Cushing, Oklahoma storage hub," the agency said in its latest Short-Term Energy Outlook.
US commercial crude oil inventories increased to a record 444 million barrels at the end of February, up 50 million barrels since the end of 2014, EIA said. US crude storage capacity is now 62% full, compared with 48% full at the same point a year ago, EIA said.
"US commercial crude oil inventories, which are already at the highest level since 1930, are expected to continue growing over the next two months," EIA Administrator Adam Sieminski said in a statement.
"The increase in oil inventories is expected to moderate as refineries ramp up their processing of crude oil into petroleum products in the second quarter and domestic oil production slows," he added.
EIA now forecasts the WTI crude spot price will average $52.15/b in 2015 and $70/b in 2016, down $2.87/b and $1/b, respectively, from February's estimates.
At the same time, EIA forecasts Brent prices will average $59.50/b in 2015 and $75.03/b in 2016, up $1.94/b and 3 cents/b, respectively, from February's estimates.
EIA said Brent prices have been buoyed by falling US crude oil rig counts and reductions in capital spending by oil companies "both of which contributed to expectations that oil supplies could decline more quickly than previous market expectations."
EIA expects US crude oil production to increase to 9.35 million b/d in 2015 and 9.49 million b/d in 2016, compared with 8.65 million b/d in 2014. These estimates are largely in line with EIA's February forecast, which pegged production at 9.3 million b/d in 2015 and 9.52 million b/d in 2016.
EIA said it expects current WTI prices to cause a decline in onshore drilling both in emerging and mature oil production regions, and while crude production is expected to reach 9.4 million b/d in the second quarter of this year it will decline by 170,000 b/d in the third quarter.
Still, EIA said production will likely continue to climb as companies redirect investments to core tight oil plays and due to a reduction in the backlog of drilled, but uncompleted wells.
"Projected 2015 oil prices remain high enough to support continued development drilling activity in the Bakken, Eagle Ford, Niobrara, and Permian basins," EIA said. "Companies with lower drilling and debt service costs that operate on acreage in the sweet spots of these regions are expected to continue to drill highly productive wells in 2015."
The growth of US production is expected to continue to eat into net imports of crude oil and other liquids, which fell from 60% of the total share of US liquid fuels consumption in 2005 to an estimated 26% in 2014. That share is expected to fall to 20% in 2016, which would be the lowest level since 1968, EIA said.
Overall, total world production of petroleum and other liquids will rise to 94.10 million b/d in 2015 from 93.01 million b/d in 2014, EIA said.
EIA said 2015 global oil demand will be 93.13 million b/d in 2015, nearly the same estimate it put out last month.
Non-OPEC petroleum and other liquids production will climb from 56.55 million b/d in 2014 to 57.58 million b/d in 2015 and 58.17 million b/d in 2016, up 310,000 b/d and 90,000 b/d, respectively, from February's estimates.
OPEC crude production is expected to be 30.08 million b/d in 2015, the same as 2014, and then to fall to 29.75 million b/d in 2016. Those forecasts are mostly unchanged from last month.