Oil Prices Jump as U.S Energy Agency Revises Forecast

Oil Prices Jump as U.S Energy Agency Revises Forecast

Crude oil prices jump on Wednesday as the United States (U.S) Energy Information Administration (EIA) revised up its forecast for global crude oil prices for 2021 in its April Short-Term Energy Outlook (STEO).

Supporting price uptrend is strong economic data from the US and China, fueling quicker economic recovery projections, especially with the more-than-expected crude oil inventory drawdown forecasts in the US.

International benchmark Brent crude was trading at $62.83 per barrel today, rising 0.14% after closing Tuesday at $62.74 a barrel.

American benchmark West Texas Intermediate (WTI) was at $59.41 per barrel at the same time, up 0.13% after it ended the previous session at $59.33 a barrel.

Oil traders think that positive economic outlook projections from the US and China recently are raising hopes of a faster economic recovery and driving the upward price trend.

Yesterday, the International Monetary Fund (IMF) revised up its global gross domestic product (GDP) growth forecast in its World Economic Outlook report. The world GDP growth expectation for 2021 jumped 6%, up from 5.5% in the fund’s January report.

Another supporting element for prices is the more-than-expected drawdown projection in US crude oil inventories by the American Petroleum Institute.

The institute estimates a draw of 2.618 million barrels for the week ending Apr. 2 while the market expectation was a 1.325-million-barrel draw.

US energy agency revises up its oil price forecast

The US Energy Information Administration (EIA) revised up its forecast for global crude oil prices for 2021 late Tuesday in its April Short-Term Energy Outlook (STEO).

International benchmark Brent crude is now estimated to average $62.28 per barrel in 2021, up from March report’s forecast of $60.67 a barrel for this year.

The agency projects Brent will average $65 per barrel in the second quarter of 2021, $61 per barrel during the second half of 2021, and $60 per barrel in 2022.

“The higher forecast reflects larger draws from global oil inventories in 2021, particularly in the second quarter, than previously expected, which will reduce global oil inventory levels through the forecast period.

“The larger draws are the result of lower expected OPEC crude oil production in the second quarter of 2021,” the agency said.

The EIA said the OPEC+ announcement on April 1 on easing existing production limits in May was generally consistent with the EIA’s assumption in last month’s STEO.

“However, Saudi Arabia also announced they would gradually relax its voluntary 1.0 million barrel per day (bpd) cut over the May–July period. If implemented as announced, Saudi Arabia’s increase would occur more slowly than we had previously assumed,” the agency explained.

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As a result, the EIA revised down its OPEC crude oil production forecast for the second quarter of 2021 by 0.5 million bpd from the March STEO and expects that the markets will be somewhat tighter in the second quarter than previously forecast, contributing to some upward price pressures.

“We forecast that the Brent crude oil price will average $65/b [per barrel] in the second quarter, when quarterly stock draws average 1.5 million bpd.

“Although that rate represents a significant draw in stocks, it is down slightly from the first quarter of 2021, when we estimated stock draws averaged 2.1 million bpd,” the agency added.

US crude output for 2021 revised down

The statistics agency revised down US crude oil production to average 11.0 million bpd in 2021 compared to 11.1 million bpd in the previous STEO.

Estimated to rise to 11.9 million bpd in 2022, the country’s oil production was 11.3 million bpd in 2020 and 12.2 million bpd in 2019.

“We are forecasting lower production despite higher expected crude oil prices (about $2/b higher in both 2021 and 2022) because we now forecast that rig activity in producing areas outside the Permian—such as Bakken, Eagle Ford, and Anadarko—will be lower than previously expected,” the EIA explained.

According to the agency, total world consumption of petroleum and liquid fuels will average 97.7 million bpd for all of 2021, marking a rise of 5.5 million bpd from 2020. This is up from the previous forecast of 97.5 million bpd.

The agency also estimated that global consumption next year would increase by 3.7 million bpd to average 101.3 million bpd.

Oil Prices Jump as U.S Energy Agency Revises Forecast