Crude inventories relentlessly high despite production-cutting measures (Part 8 of 9)
(Continued from Part 7)
EIA’s crude price forecasts for 2015
In its recent STEO (Short-Term Energy Outlook), the EIA (U.S. Energy Information Administration) stated that January marked the seventh consecutive month that monthly average Brent prices decreased. They decreased by $15 per barrel from December to a monthly average of $48 per barrel. This is the lowest since March 2009.
WTI (West Texas Intermediate) prices also fell from an average of $59 per barrel in December to $47 per barrel in January, the lowest level since February 2009.
A combination of robust supply levels and weak global demand has depressed oil prices.
The EIA estimates that WTI crude oil prices will average $55 per barrel in 2015 and $71 per barrel in 2016.
For Brent, the EIA expects prices to average $58 per barrel in 2015 and $75 per barrel in 2016. These forecasts are unchanged from last month’s STEO.
Responses to low oil prices
A key supply-based response to low oil prices has been a sharp decline in rig counts and reductions in 2015 capex (capital expenditures) budgets by major oil and gas companies. These companies include EOG Resources (EOG), Marathon Oil (MRO), Chevron Corporation (CVX), and BP Plc (BP). Most of these companies are part of the Energy Select Sector SPDR ETF (XLE) and make up ~19% of the ETF.
Despite these reductions, the EIA expects 2015 production to touch 9.3 million barrels per day (or bpd) in 2015. Production in 2014 averaged 8.6 million bpd in 2014, according to EIA estimates.
According to the EIA, WTI prices will average $50 per barrel in the first half of 2015. However, the EIA believes that as oil prices start rising in the second half of 2015, drilling activity and production will likely increase again. Capex cuts and lower drilling might offer some hope for oil prices as markets might perceive supply and demand balancing out.
In the next part of this series, we’ll discuss the EIA’s global oil supply projections.
Continue to Part 9
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