EIA’s May Short-Term Energy Outlook (STEO) predicts that Brent crude oil prices will average $71 per barrel (b) in 2018, $7/b higher than last month’s STEO. EIA’s forecast for regular gasoline retail prices increased to an average of $2.79/gallon (g) in 2018, $0.15/g higher that in last month’s STEO. Monthly average Brent crude oil spot prices have increased in 9 of the past 10 months.
EIA expects West Texas Intermediate (WTI) crude oil prices to average $5/b lower than Brent prices in 2018. In late April 2018, daily spot prices for Brent crude oil reached $76/b, the highest level in nearly four years.
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Crude oil prices were probably been driven higher for three reasons:
- Falling global oil inventories;
- Heightened market perceptions of geopolitical risks;
- Strong global economic growth signals.
EIA estimates that global oil inventories reduced an average of nearly 0.6 million barrels per day (b/d) in each of the past five quarters (January 2017 through March 2018). Oil inventories for countries within the Organization for Economic Cooperation and Development (OECD) at the end of April were an estimated 3% lower than the previous five-year average (2013–2017) in terms of days of supply.
In April, when EIA developed the May STEO, several geopolitical risks presented sources of uncertainty. These risks, including the re-imposition of oil sanctions against Iran and the upcoming results of May elections in Venezuela, may turn into actions that remove oil supplies from the global market and, in turn, tighten global oil balances.
The US announcement that it would withdraw from the Joint Comprehensive Plan of Action with Iran resulted in price movements not being reflected in the May STEO, but EIA will consider these developments for the June STEO.
At the same time, global liquid fuels consumption is increasing. EIA estimates global oil consumption-weighted gross domestic product (GDP) growth for 2018 will be at its highest rate since 2012. Greater GDP growth has the potential to increase oil consumption, which could pressure crude oil prices, and drive systemic market movements in equities, bonds, and other commodities, which are often correlated with movements in crude oil prices.
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