The U.S. Energy Information Administration (EIA) forecasts lower crude oil prices in the fourth quarter of 2019 and in 2020 despite tighter global balances.
The tighter balances are largely the result of unprecedented short-lived loss of global supply following the September 14 attacks on crude oil production and processing infrastructure in Saudi Arabia, EIA said in its October 2019 Short-Term Energy Outlook (STEO).
The production declines contribute to overall stock draws in the second half of 2019 with a relatively large stock draw in the third quarter. In the fourth quarter, however, EIA forecasts global supply growth will outpace global demand growth, resulting in an inventory build, offsetting some of the third quarter draws.
EIA lowered its crude oil price forecast for the fourth quarter of 2019 by $1 per barrel (bbl) to $59/bbl, reflecting current price trends, and lowered its crude oil price forecast for 2020 by $2/bbl to average $60/bbl because of expected supply growth.
Crude oil prices increased sharply following the attacks. Saudi Arabia continued to export crude oil by drawing from inventories, increasing production in other fields, and reducing domestic refinery inputs. Abqaiq’s relatively quick return to operations likely lessened the extent and duration of the price increases. Brent front-month futures prices fell to lower than pre-attack levels on October 1, settling at $59/b for the December contract and have fallen slightly since then.
The relatively quick return to pre-attack price levels likely reflects demand-side concerns and increased down-side price risk. Despite tighter forecast global petroleum markets in the second half of 2019, EIA expects that the Brent crude oil price will average $60.63/bbl in the second half of 2019, nearly unchanged from the $60.68/bbl forecast in the September STEO.
EIA forecasts that global petroleum inventories will increase by nearly 550,000 bpd in the first half of 2020, which is expected to put downward pressure on crude oil prices. EIA forecasts the price of Brent crude oil to average $57.34/bbl during the first half of 2020. However, EIA expects the price of Brent crude oil to increase to $62.48/bbl in the second half of 2020 as global petroleum stock builds slow and petroleum balances are relatively tighter than during the first half of the year.