EIA pushes crude price estimates down
In the first two parts of the series, we discussed crude oil production and consumption estimates. In this article, we will discuss crude oil prices in the U.S.
The U.S. Energy Information Administration (or EIA) released its October short-term energy outlook (or STEO). It expects West Texas Intermediate (or WTI) crude to average $97.72 per barrel in 2014, or 0.2% lower than $97.91 per barrel in 2013. The latest price projection is 0.57% lower than EIA’s projection for 2014 last month.
Factors affecting Brent crude
The EIA projects that the Brent crude oil price will average $98 per barrel in 4Q14, or $5 per barrel lower than September’s forecast and $10 per barrel lower than the August forecast. The forecasts for Brent crude oil prices average $104 per barrel in 2014 and $102 per barrel in 2015, $2 per barrel lower, and $1 per barrel lower than projected in last month’s STEO, respectively.
The Brent crude oil price reflects the international price for U.S. oil producers. The primary factors contributing to the lower Brent price projections are weakening global demand and increased oil exports from Libya. Libya resumed oil exports from two of its biggest ports in July.
Read part 9 of the series to see what the EIA’s estimates on international crude oil production are.
WTI crude reflects the U.S. domestic oil producers’ price, which analysts expect will stay strong relative to Brent crude. This will lead to narrowing of the WTI’s discount to Brent. The price difference will narrow to ~$7 per barrel in 2014 and 2015, from ~$11 per barrel in 2013. This is also $1 per barrel lower than the last month’s estimate.
Lower WTI crude will hurt U.S. oil producers’ profitability. These companies include Whiting Petroleum (WLL), Halcon Resources (HK), Laredo Petroleum (LPI), and Pioneer Natural Resources (PXD). Most of these companies are components of the Energy Sectors Select SPDR ETF (XLE).
Crude oil prices have been volatile. Read the next section to find out how this affects production and price. You can also read our article, A must-read analysis of recent WTI-Brent oil spread trends to get our latest insight on crude oil prices.