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STEO highlights: EIA cuts Brent, WTI 2019 forecasts nearly $11/b amid supply glut

Washington — The US Energy Information Administration on Tuesday reduced its forecasts for WTI and Brent spot prices in 2019 by nearly $11/b, largely due to record global output, particularly in the US, and lower-than-expected demand.

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In its Short-Term Energy Outlook, EIA forecast WTI to average $54.19/b in 2019, down $10.66/b from the agency's forecast last month, and Brent to average $61/b in 2019, down $10.92/b from last month's forecast.

The dramatically reduced price forecast comes after Brent traded within a range around $17.49/b in November, its most volatile month since 2012, and WTI traded in a range around $15.98/b, its most volatile month since 2014.

"The implied volatility of Brent and WTI, calculated from options prices, more than doubled during the month, reflecting the market's heightened uncertainty regarding future oil supply and demand," EIA said.

EIA expects that the magnitude of the recent price declines combined with the OPEC production cuts will bring 2019 supply and demand numbers largely into balance, which EIA forecasts will keep prices near current levels in the coming months.

"EIA's December short-term outlook largely attributes the recent decline in Brent crude oil spot prices, which averaged $65 per barrel in November, to record production among the world's largest crude oil producers and concerns about weaker global oil demand," EIA Administrator Linda Capuano said in a statement.

Other highlights from the report include:

PRICES

**EIA forecasts WTI to average $65.18/b this year, down $1.61/b from last month's forecast, and Brent to average $71.40/b, down $1.72/b from last month.

**EIA attributed recent a decline in prices to: output at or near record levels from the US, Russia and Saudi Arabia; the US issuing waivers to some of the largest purchasers of Iranian crude, including China and India, as it reimposed sanctions on November 5; and stagnant economic growth.

SUPPLY

**EIA forecasts US oil production to average 10.88 million b/d in 2018, up from 9.35 million b/d in 2017, and then climb to 12.06 million b/d in 2019.

**Capuano said that the US will end 2018 as the world's largest crude oil producer.

**EIA forecasts oil production in the Lower 48 states, which averaged 7.18 million b/d in 2017, to climb to 8.68 million b/d in 2018 and then to 9.63 million b/d in 2019. US Gulf of Mexico production, which averaged 1.68 million b/d in 2017, will climb to 1.73 million b/d in 2018 and 1.95 million b/d in 2019, EIA said Tuesday.

**EIA called last week's agreement by OPEC, Russia and other producing countries to reduce production by 1.2 million b/d a "response to increasing evidence that oil markets could become oversupplied in 2019."

**OPEC members produced 32.98 million b/d in November. EIA expects OPEC production to average 32.57 million b/d in 2018, down 70,000 b/d from last month's outlook, and average 31.79 million b/d in 2019, down 410,000 b/d from last month's outlook.

**EIA expects OPEC production to average 32.06 million b/d in first-quarter 2019 and 31.8 million b/d in Q2 2019, down 300,000 b/d and 400,000 b/d, respectively, from last month's forecast.

**Iran's production fell 300,000 b/d to 3.1 million b/d from October to November as US sanctions against its oil customers went into effect. Iran produced 3.84 million b/d in November 2017.

**Saudi Arabia ramped up production to 10.92 million b/d in November, up 200,000 b/d from October, in response to pressure from the US. Saudi Arabia produced 10.13 million b/d in November 2017.

**Venezuelan production fell a modest 20,000 b/d month on month to 1.18 million b/d in November, edging closer to the 1 million b/d threshold.

DEMAND

**EIA said that "concerns about the pace of global economic growth in coming months have led to related concerns about the pace of oil demand growth."

**After averaging 98.05 million b/d in 2017, EIA forecasts total world production will average 100.42 million b/d in 2018, about 330,000 b/d above total world demand. EIA forecasts global output will average 101.84 million b/d in 2019, about 230,000 b/d above world demand.

**"In last month's STEO, EIA expected downward price pressures could materialize by the middle of 2019 to reduce global inventory builds," the report said. "EIA expects that the magnitude of the recent price declines combined with the OPEC production cuts will bring 2019 supply and demand numbers largely into balance, which EIA forecasts will keep prices near current levels in the coming months."

**US motor gasoline demand is expected to average 9.31 million b/d in 2018, down 20,000 b/d from 2017. It is expected to climb 60,000 b/d, to 9.37 million b/d, in 2019.

**Total US liquids fuel demand is expected to average 20.48 million b/d in 2018, up 52,000 b/d from 2017, and climb to 20.81 million b/d in 2019.

-- Brian Scheid, brian.scheid@spglobal.com

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com