February 29, 2024

The U.S. Energy Information Administration (EIA) increased its average Brent spot price forecast for 2023 and 2024 in its latest short term energy outlook (STEO), which was released this week.

According to the June STEO, the EIA now expects the Brent spot price to average $79.54 per barrel this year and $83.51 per barrel next year. In its previous STEO, which was released in May, the EIA projected that the Brent spot price would average $78.65 per barrel this year and $74.47 per barrel in 2024. The Brent spot price averaged $100.94 per barrel in 2022, the EIA’s latest STEO highlighted.

In the June STEO, the Brent spot price is projected to average $78.83 per barrel in the second quarter of 2023, $78.32 per barrel in the third quarter, $79.97 per barrel in the fourth quarter, $81.98 per barrel in the first quarter of 2024, $83 per barrel in the second quarter of 2024, $84 per barrel in the third quarter of 2024, and $85 per barrel in the fourth quarter of next year.

Back in the May STEO, Brent was expected to come in at $77.56 per barrel in the second quarter of 2023, $78 per barrel in the third and fourth quarter, $77 per barrel in the first quarter of 2024, $75 per barrel in the second quarter of 2024, $74 per barrel in the third quarter of 2024, and $72 per barrel in the fourth quarter of next year.

In its latest STEO, the EIA noted that the Brent crude oil spot price averaged $76 per barrel in May, which it highlighted was down $9 per barrel from April.

“Crude oil prices fell in May as ongoing uncertainty about economic conditions continued to limit expectations for global oil demand growth,” the EIA said in the STEO.

“Despite the recent weakness in oil prices during May, we expect that global oil inventories will decline in each quarter from the third quarter of 2023 through 3Q24, which we expect will put gradual upward pressure on oil prices. We forecast that global oil inventories will decrease slightly in 2024, compared with last month’s STEO that forecast inventory growth of 0.3 million barrels per day,” the EIA added.

“As a result of these changes, we now forecast that the Brent crude oil price will increase from an average of $79 per barrel in the second half of 2023 ($1 per barrel higher than in our May STEO) to an average of $84 per barrel for 2024 ($9 per barrel higher than in our May STEO),” the organization continued.

In its June STEO, the EIA warned that significant uncertainty remains around global economic growth and the potential impact on oil demand over the forecast period.

Crude Oil Prices Should be Higher

In a statement sent to Rigzone this week, Enverus Intelligence Research (EIR), a subsidiary of Enverus, said it continues to call for a gradual improvement of global economic activity and seasonal demand tail winds to lead to a supply shortage of one to three million barrels per day in 2H23 and $100 per barrel Brent by 4Q23.

“Crude oil prices should be higher than they currently are,” EIR said in the statement.

“However, short sellers concerned about the global economy and oil demand (currently, at an all-time high of approximately 101.5 million barrels per day) are keeping prices subdued,” EIR added.

Al Salazar, EIR’s Senior Vice President, said in the statement, “we anticipate that demand growth from China and India will account for 80 percent of oil demand growth this year”.

Salazar warned, however, that there is a risk that front-month NYMEX prices could test below EIR’s anticipated price range “since storage remains on pace to challenge record highs”.

In another statement sent to Rigzone this week, Wood Mackenzie said the decision by OPEC+ to extend current production cuts and an additional voluntary one million barrel per day reduction for July from Saudi Arabia should provide support for prices in the rest of 2023.

“Setting aside various markets’ fears of possible global recession, the outlook for oil demand and supply remains broadly supportive for Brent prices in the second half of 2023,” Ann-Louise Hittle, the Vice President Macro Oils at Wood Mackenzie, said in the statement.  

“We forecast a significant implied global stock draw in Q3 2023, and we expect the OPEC+ June 4 decision to increase the implied stock draw for that quarter due to mostly the additional voluntary production cuts Saudi Arabia announced,” Hittle added.

In the statement, Wood Mackenzie noted that its Macro Oils Service projects global oil demand to rise 2.4 million barrels per day on an annualized basis, “eclipsing a 1.5 million barrel per day year on year gain in total liquids supply, with Brent forecast to average $84.70 per barrel in 2023”.

Wood Mackenzie said in the statement that it expects global oil demand to surpass total liquids supply in Q2 through Q4 2023, “provided market concerns about economic weakness ease”.

Hittle also outlined that OPEC+ faced “several tricky issues at its biannual meeting”.

“Mainly, ongoing fears in the greater financial markets that China’s economic recovery is not happening and therefore demand growth is seen as a risk, as well as the geopolitical complications of reorganizing, reassigning, and agreeing on an additional production cut for the rest of this year,” Hittle added in the statement.  

“By OPEC+ rolling over the current agreement, and with Saudi Arabia announcing a further voluntary cut, the group has gone some way towards achieving its goal of supporting prices,” Hittle continued.

Impatient Market

In another report sent to Rigzone recently, analysts at Standard Chartered projected that the price of Brent will average $91 per barrel this year and $98 per barrel next year. In this report, Brent is predicted to average $88 per barrel in the third quarter of this year, $93 per barrel in the fourth quarter, $92 per barrel in the first quarter of 2024, $94 per barrel in the second quarter of 2024, and $98 per barrel in the third quarter of next year.

“The oil market, impatient and seemingly loathe to look too deeply into the balances, seems to think the lollipop cut [Saudi Arabia’s one million barrel per day production reduction] does not matter,” Standard Chartered analysts stated in the report.

“We think it is a significant change and supports a rising price environment over coming months,” they added.

In a separate report sent to Rigzone this week, BofA Global Research revealed that it was maintaining its average $80 per barrel Brent forecast for this year.

“With macro headwinds moving from a tropical storm to a cat 1 hurricane, OPEC+ cut again, and balances should tighten in 2H,” BofA Global Research analysts noted in the report.

“Yet, as physical oil markets face off with M2 contraction, bearish asset allocators will keep clashing with bullish oil specs,” they added.

“In this battle royale, oil has a losing hand until money starts easing again. So, we keep our $80 per barrel average 2023 Brent forecast,” they continued.

To contact the author, email andreas.exarheas@rigzone.com

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