Crude oil prices revised down in the May Short-Term Energy Outlook (5/10/2023)

We revised down our crude oil price forecast in the May Short-Term Energy Outlook (STEO) because of rapid declines in the price of crude oil at the end of April and in early May. Between April 12, 2023, and May 4, 2023, the price of Brent crude oil fell $16 per barrel (b) to $73/b. Over the same period, the price of West Texas Intermediate (WTI) crude oil fell $15/b to $69/b. The declines followed news of a decrease in China’s manufacturing Purchasing Managers’ Index (PMI), an indicator of economic conditions, which added to concerns about China’s economic growth and to concerns regarding a possible U.S. recession. Additional concerns about the banking sector following the closure and sale of First Republic Bank also added uncertainty in the market. Oil flows from Russia have also remained higher than expected, raising global supply. Despite downward revisions in our forecast, we expect that a drop in OPEC production and seasonal increases in demand will slightly raise prices over the next few months (Figure 1).

Figure 1. Short-Term Energy Outlook crude oil spot price forecasts

We expect that the price of Brent will increase from $74/b in May to $79/b in September before declining slightly to average $78/b in the fourth quarter of 2023 (4Q23) and $77/b in 1Q24, and we expect the price of WTI will follow a similar path. Now that WTI is included in the price of dated Brent, the spread between the two crude oils has narrowed, and we have decreased the spread through our forecast to $5/b. We will continue to watch this area of our forecast closely. The relatively flat price path is the result of essentially balanced markets during this period. We expect to see global liquid fuels stock builds of 280,000 barrels per day (b/d) in 2Q24, which increase to 530,000 b/d in 4Q24, lowering crude oil prices (Figure 2). We forecast that the Brent price will average $72/b in December 2024 and that the WTI price will average $67/b.

Figure 2. World liquid fuels production and consumption balance

In our May STEO, we forecast that OPEC total liquid fuels production will decline from 34.0 million b/d in March to 33.8 million b/d in 2Q23 and 3Q23 and 33.6 million b/d in 4Q23. In addition to the expected adherence to voluntary production cuts, recent disruptions to crude oil exports from Iraq and a force majeure limiting crude oil exports from Nigeria have also reduced our near-term OPEC forecast. In 2023, we forecast OPEC liquid fuels production will average 33.8 million b/d. In 2024, we expect OPEC liquid fuels production will increase by 700,000 b/d to 34.4 million b/d, driven by an end of the current OPEC+ production cuts in 2023.

Although we expect that Russia’s petroleum production will decline through the forecast, in the May STEO, we revised annual production up by 60,000 b/d in 2023 and 2024 compared with the April STEO. We forecast Russia’s crude oil and other liquid fuels production will decline from 10.9 million b/d in 2022 to 10.6 million b/d in 2023 and to 10.5 million b/d in 2024. Russia’s production in March and April declined due in part to announced production cuts of 0.5 million b/d and maintenance at refineries in Russia, which we expect will end in June. Our assumption of a return to near-normal refinery operations contributes to a slight increase in Russia’s total liquid fuels production from 10.4 million b/d in 2Q23 to 10.5 million b/d through 2024 in our forecast.

In 2023, we forecast that non-OPEC petroleum production will grow by 1.9 million b/d to 67.6 million b/d. The growth is driven by increasing production in the United States, which we forecast will grow by 900,000 b/d to 21.1 million b/d in 2023. We forecast that production in Norway will increase by 350,000 b/d in 2023 as production in the Johan Sverdrup field comes online. Production in Canada and Brazil are also expected to have moderate growth in 2023, with production in each country expected to increase by more than 200,000 b/d. We expect that non-OPEC petroleum production growth in 2024 will slow, increasing by 1.0 million b/d, with the largest growth in U.S. production, which we forecast will increase by 380,000 b/d.

We forecast that global liquid fuels consumption will increase by 1.6 million b/d in 2023 and 1.7 million b/d in 2024, with most of the growth in China and India. In 2023, we forecast consumption in China will increase by 760,000 b/d and consumption in India will increase by 230,000 b/d. We forecast that consumption in the United States will increase by 190,000 b/d in 2023. We expect that the demand growth will largely match production increases, leading to relatively balanced markets until 2Q24. We expect inventory builds from 2Q24 through 4Q24 will lower crude oil prices, and we forecast the price of Brent will fall from $77/b in 1Q24 to $72/b in 4Q24.

Source: EIA

Related Articles