The U.S. Energy Information Administration (EIA) lowered its Brent oil price forecast for 2024 and 2025 in its latest short term energy outlook (STEO), which was released recently.
In its May STEO, the EIA projected that the Brent spot price will average $87.79 per barrel in 2024 and $85.38 per barrel in 2025. The EIA forecast in the STEO that the commodity will average $89.30 per barrel in the second quarter, $90 per barrel in the third quarter, $88.67 per barrel in the fourth quarter, $88 per barrel in the first quarter of 2025, $86 per barrel in the second quarter, $85 per barrel in the third quarter, and $82.66 per barrel in the fourth quarter of next year.
In its previous STEO, which was released in April, the EIA projected that the Brent spot price would average $88.55 per barrel this year and $86.98 per barrel next year. In that STEO, the EIA forecast that the commodity would come in at $89.97 per barrel in the second quarter, $91.34 per barrel in the third quarter, $89.67 per barrel in the fourth quarter, $88.34 per barrel in the first quarter of next year, $87 per barrel across the second and third quarters, and $85.66 per barrel in the fourth quarter.
In its latest STEO, the EIA highlighted that the spot price of Brent crude oil averaged $90 per barrel in April, which it noted was up $5 per barrel from March and the fourth consecutive monthly increase.
“However, daily crude oil spot prices have since fallen, and the Brent spot price settled at $84 per barrel on May 2,” the EIA said in the STEO, adding that prices increased in April due to falling global oil inventories.
“Geopolitical tensions also supported crude oil prices amid conflict between Iran and Israel, which added uncertainty to already heightened tensions in the Middle East,” the EIA stated in the May STEO.
“Despite these tensions, crude oil price volatility has been subdued for much of this year by significant spare crude oil production capacity,” it added.
“If holders of spare production capacity choose to deploy it, supply can be available to the oil market in the event of any short-term supply disruption,” it continued.
In the STEO, the EIA estimated that OPEC spare production capacity will be around four million barrels per day through 2025. It also assessed that voluntary OPEC+ production cuts are reducing global oil inventories in the first half of 2024 and estimated that global oil inventories are decreasing by an average of 0.3 million barrels per day in the first half of the year.
“We anticipate some OPEC+ producers will continue to limit production after current voluntary OPEC+ cuts expire at the end of June,” the EIA said in the STEO.
“Our expectation of ongoing production restraint leads to our forecast of a relatively balanced oil market in 2H24, which we expect will keep oil prices near $90 per barrel for the remainder of 2024, before stronger supply growth contributes to global oil inventory builds of 0.4 million barrels per day in 2025, causing prices to fall to an average of $85 per barrel next year,” it added.
“However, there remains significant uncertainty centered around ongoing developments in the Middle East, which have the potential to increase oil price volatility and lead to sharp increases in oil prices,” the EIA warned.
In a report sent to Rigzone last week, analysts at Standard Chartered noted that Brent prices fell sharply on May 1, “with the loss maintained in the following days”.
“The front-month contract reached an eight-week low of $82.41 per barrel intra-day in early trading on May 7. Brent for July delivery fell by $3.87 per barrel week on week to a settlement of $83.33 per barrel on May 6,” they added.
“The headline front-month price was lower week on week by $5.07 per barrel given the backwardated expiry of the June contract,” they continued.
In that report, the analysts warned that, in the very short term, their machine-learning oil price model “indicates that the downdraft in prices has the potential continue a little further”.
“It indicates a week on week fall of $1.15 per barrel with a negative volatility to price relationship playing a particularly marked role for the week on week change for settlement on May 13,” they added.
Standard Chartered projected in the report that the nearby future ICE Brent price will average $98 per barrel in the third quarter of this year, $106 per barrel in the fourth quarter, $107 per barrel in the first quarter of 2025, $103 per barrel in the second quarter, and $111 per barrel in the third quarter.
The company forecast in the report that the nearby future ICE Brent price will come in at $109 per barrel overall in 2025, $128 per barrel overall in 2026, and $115 per barrel overall in 2027.
In another report sent to Rigzone last week, Macquarie strategists said they expect the Brent price to remain range bound between $80 – $90 through the second quarter.
“At this point, we believe the odds are greater that oil falls below $80 versus consistently rising above $90 given the slow but steady march towards a cease-fire and increasingly bearish fundamentals,” they added.
“Following 2Q24, we anticipate oil will become bearish due to NOPEC supply growth, OPEC+ spare capacity returning to market, and demand disappointment as a result of stubborn inflation,” they continued.
In a report sent to Rigzone at the start of the month, analysts at J.P. Morgan revealed that their Brent fair value for May remained unchanged at $88 per barrel.
“April averaged $89 vs our fair value of $86”, the analysts highlighted in that report.
