Brent Crude spot prices are set to average $68.78 per barrel this year, the U.S. Energy Information Administration (EIA) said in its latest monthly outlook, significantly raising its oil price projections for both 2021 and 2022, expecting continued demand recovery.
The latest Brent price forecast in EIA’s Short-Term Energy Outlook (STEO) for July is more than $3 a barrel higher than the June forecast of $65.19.
It should be noted, however, that the Administration completed its forecasts for the July STEO on July 1, that is, just before the OPEC+ spat threw markets into uncertainty over immediate supply, the future of the production deal, and the alliance itself.
According to EIA’s estimates as of July 1, the average spot price of the U.S. benchmark, WTI Crude, will be $65.85/b this year, up from an average of $61.85/b expected last month.
For 2022, the price forecasts were also hiked. Brent spot prices are set to average $66.64/b, up from the previous $60.49 forecast, while the WTI spot price next year is expected to average $62.97/b, up by more than $6/b compared to the June forecast of $56.74/b.
The EIA also noted the narrowing of the Brent-WTI spread, as the increase in WTI prices outpaced the rise in Brent for most of June, resulting in a narrowing of the Brent–WTI spread to as low as $0.61/b on July 1.
“The persistently increasing crude oil prices reflect continuing increases in petroleum demand as the global economy continues to recover from the impacts of COVID-19. The rising prices also reflect ongoing constraints on crude oil supply as crude oil production remains relatively low compared with the more rapid pace of growing demand,” the EIA said.
Next year, global supply growth, from OPEC+ as well as from accelerating U.S. oil production growth, is expected to outpace growth in demand and contribute to average oil prices in 2022 lower than those in 2021, the EIA said in its forecast issued before the UAE-Saudi spat threw global supply forecasts into greater uncertainty.
By Tsvetana Paraskova for Oilprice.com
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Moreover, oil prices will continue surging whether OPEC+ reaches a deal on increasing production or not. If OPEC+ fails to reach an agreement, prices will surge further because this will deprive the market of 2 million barrels of increased OPEC+ production leading to a further tightening of the market. And if OPEC+ does eventually reach a deal, prices will equally rise because this will show its great confidence in the sound fundamentals of the global oil market. Either way, OPEC+ and prices win.
And while supplies from OPEC+ will continue to rise throughout 2021 and 2022, a comeback by US shale oil production to pre-pandemic levels isn’t expected now or ever.
Therefore, the global oil market could be headed to a supply deficit in 2022 leading to further surge in Brent crude to $80 by the fourth quarter of 2021 or the first quarter of 2023.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London