[ad_1]
The U.S. Energy Information Administration (EIA) increased its average Brent spot price forecast for this year and next year in its latest short term energy outlook (STEO), which was released this week.
According to its April STEO, the EIA now sees the Brent spot price averaging $89.97 per barrel in the first quarter of 2024, $91.34 per barrel in the second quarter, $89.67 per barrel in the fourth quarter, and $88.55 per barrel overall in 2024. The STEO put the first quarter average at $82.96 per barrel.
The EIA projects in its latest STEO that the commodity will average $88.34 per barrel in the first quarter of 2025, $87 per barrel across the second and third quarters of next year, $85.66 per barrel in the fourth quarter, and $86.98 per barrel overall in 2025.
In its previous STEO, which was released in March, the EIA forecast that the Brent spot price would average $87 per barrel this year and $84.80 per barrel in 2025. This was a notable increase from the Brent spot price forecasts in the EIA’s February STEO, which came in at $82.42 per barrel for 2024 and $79.49 per barrel for 2025.
The EIA’s March STEO saw the Brent spot price averaging $82.82 per barrel in the first quarter of 2024, $87.97 per barrel in the second quarter, $89 per barrel in the third quarter, $88 per barrel in the fourth quarter, $87.34 per barrel in the first quarter of 2025, $86 per barrel in the second quarter, $84 per barrel in the third quarter, and $82 per barrel in the fourth quarter.
“The Brent crude oil spot price averaged $85 per barrel in March, a $2 per barrel increase compared with February and the third consecutive month when the average Brent price increased,” the EIA noted in its latest STEO.
“Oil prices continued to increase in March as a result of heightened geopolitical risk related to the attacks targeting commercial ships transiting the Red Sea shipping channel and general elevated tensions around the region,” it added.
“In addition, the recent extension of OPEC+ voluntary production cuts add to upward price pressure right at a time of the year when oil demand typically increases because of the spring and summer driving seasons in the Northern Hemisphere,” it continued.
“The combination of flat production and rising consumption causes our forecast of global oil inventories to fall by more than 0.9 million barrels per day in 2Q24, which we expect will add upward pressure to oil prices,” it went on to state.
In its April STEO, the EIA said it expects the tighter market balance to keep oil prices relatively elevated, “averaging $90 in 2Q24 – $2 per barrel higher than in last month’s STEO”.
“We forecast oil inventories will begin increasing in 2025 because we assume OPEC+ production will increase when OPEC+ supply cuts expire. We forecast global oil inventories to increase by an average 0.4 million barrels per day in 2025, which we expect will put downward pressure on prices,” it added.
“We forecast the Brent crude oil price will decrease year over year from an average $90 per barrel in 4Q24 to an average $86 per barrel in 4Q25, with annual averages of $89 per barrel in 2024 and $87 per barrel in 2025,” it said in the STEO.
Increasing Talk of Oil Market Getting Very Tight
In a report sent to Rigzone on Tuesday, Bjarne Schieldrop, the Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), said, “there is increasing talk about the oil market getting very tight in H2-24 and that the oil price could shoot higher unless OPEC+ is producing more”.
“But of course OPEC+ will indeed produce more. The health of the global economy is essential for OPEC+. Healthy oil demand growth is like the goose that lays the golden egg for them. In no way do they want to kill it with too high oil prices,” he added in the report.
“Brent crude averaged $82.2 per barrel last year with a high of $98 per barrel. So far this year it has averaged $82.6 per barrel. SEB’s forecast is $85 per barrel for the average year with a high of $100 per barrel,” he continued.
“We think that a repetition of last year with respect to oil prices is great for OPEC+ and fully acceptable for the global economy and thus will not hinder a solid oil demand growth which OPEC+ needs,” he went on to state.
In the report, Schieldrop said Brent crude “will head yet higher because OPEC+ continues to hold back supply Q2-24 resulting in declining inventories and thus higher prices”.
“But when the oil price is nearing $100 per barrel, we expect verbal intervention from the group with statements like ‘… more supply in H2-24’ and that will probably dampen bullish prices,” he added.
“Not only does OPEC+ want to produce at a normal level. It also needs to produce at a normal level because at some point in time in the future there will be a situation sooner or later where they will have to cut again. And unless they are back to normal production at that time, they won’t be in a position to cut again,” he continued.
“So, OPEC+ won’t kill the goose that lays the golden egg. They won’t allow the oil price to stay too high for too long,” Schieldrop highlighted.
In another report sent to Rigzone on Tuesday, analysts at Standard Chartered said “Brent volatility has remained subdued even as prices broke out above $90 per barrel”.
“Realized 30-trading day volatility stood at a six-month low of 17.5 percent at settlement on 8 April; volatility has been lower on only 2.4 percent of trading days in the past five years and on only 8.9 percent of trading days since the launch of the Brent futures contract in 1988,” they added.
The analysts noted in the report that the combination of low volatility with significant geopolitical uncertainty and low and falling inventories is unusual.
“We think it implies the market is being dragged higher by tightening fundamentals rather than speculative over-exuberance or reactions to geopolitical risk,” they said.
“Front-month Brent rose $2.96 per barrel week on week to settle at $90.38 per barrel on 8 April, reaching a five-month high of $91.91 per barrel intra-day on 5 April,” they added.
The analysts highlighted in the report that Standard Chartered’s machine learning oil price model – SCORPIO – had indicated a week on week increase of $0.49 per barrel for settlement on 8 April. They said this was “the correct direction but $2.47 per barrel less than the actual increase”.
“For the week on week increase to 15 April, the SCORPIO indication is a fall of $0.57 per barrel,” the analysts said in the report.
In its report, Standard Chartered projected that the ICE Brent nearby future price will average $94 per barrel in the second quarter of 2024, $98 per barrel in the third quarter, $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.
To contact the author, email andreas.exarheas@rigzone.com
[ad_2]
Source link