EIA cuts WTI, Brent price forecasts steeply

The US Energy Information Administration (EIA) revised its 2016 estimate for average WTI crude prices down by more than $12/bl to $38.54/bl.

The agency also lowered its average Brent crude price forecast for this year to $40.15/bl, more than $15/bl lower than the previous estimate, according to its Short-Term Energy Outlook (Steo).

But the agency also warned that current values of futures and options contracts "continue to suggest high uncertainty in the price outlook."

The forecast decline came on the heels of a similar move by various banks including BofA Merrill Lynch, Societe Generale and Wells Fargo, which cut price forecasts for this year after US benchmark WTI futures dropped by about 10pc last week. Analysts at Morgan Stanley said yesterday that oil prices in the $20-$25/bl range are possible in part because of a stronger US dollar.

Prices have been pressured by record high crude and product inventories, signs of slowing global economic growth and Iran's imminent re-entry into the market as western sanctions are lifted.

WTI prices today fell below $30/bl in intraday trade.

The EIA included 2017 prices forecasts for the first time in the Steo. Brent prices next year should average $50/bl and WTI prices should average $47/bl.

US output should drop steadily this year to 8.5mn b/d in November 2016 from about 9.2mn b/d in December, the agency said.

The 700,000 b/d drop this year because of low crude prices will be the first annual decline since 2008, said EIA administrator Adam Sieminski. Production is expected to stay near 8.5mn b/d for most of 2017.

The EIA estimates that production in December fell by 80,000 b/d compared to the previous month.

Global consumption of crude and other liquid fuels should continue to grow by 1.4mn b/d in both 2016 and 2017.

Opec production should rise by 500,000 b/d this year, as Iran increases production. Iran's crude output is forecast to grow by 300,000 b/d in 2016 and by 500,000 b/d in 2017.

The forecast growth of Iran's output "also depends on internal factors including Iran's ability to mitigate production decline rates and meet technical challenges and on its willingness to discount oil," the EIA said.