International oil prices are contingent upon both the worldwide growth in oil production and the worldwide growth in oil inventories. Understanding the balance of these movements, and interpreting those movement is undertaken by the Energy Information Agency (EIA) and the International Energy Agency (IEA), in order to better evaluate and predict oil price movements.
In the U.S., and across the globe, a glut in oil inventories has inhibited upward price movement, making the growth of oil production and inventories key to oil and gas traders worldwide.
EIA’s interpretation
In the Energy Information Agency’s Short-Term Energy Outlook, the EIA predicts that inventory draws in Q2 and Q3 of 2017—while moderated by non-OPEC production—may result in the slight increase of oil prices during those months. The agency expects that, as prices creep up, U.S. tight oil production will respond and raise U.S. crude oil supply in 2018.
Global inventory is expected to grow in 2018 with the growth of Brazilian production by 570,000 BOPD and OPEC production by 220,000 BOPD. The growth will contribute to a reduction in oil prices. The EIA anticipates that OPEC will extend its production cuts through March, 2018—but that non-adherence to the production cuts by OPEC’s member countries will begin rising in late 2017 and through the second half of 2018.
The EIA’s report estimates that the 2017 average spot price for Brent crude will be $53 per barrel, with WTI prices estimated to be $2 per barrel less than Brent prices. The forecast for 2018 estimates Brent prices at an average of $56 per barrel, with WTI prices remaining at $2 per barrel less in 2018 as well.
For U.S. production, the EIA estimates an average of 9.3 million BOPD in 2017 with growth to an average of 10.0 million BOPD in 2018.
IEA’s interpretation
The International Energy Agency has predicted that reduced growth visible in early 2017 will be short-lived, and has maintained its year-end estimate of 1.3 million BOPD of growth in demand. The IEA estimates that the growth in 2018 will total 1.4 million BOPD, raising ultimate global demand to 99.3 million BOPD.
Growth in OPEC oil production totaled 290 MBOPD—raising total production to 32.08 MMBOPD. The growth was primarily attributed to production gains in Libya and Nigeria, both of which are exempt from oil production cuts. Compliance to OPEC’s production target was ideal at approximately 96%.
The IEA estimated that U.S. crude supply will rise by a total of 920 MBOPD from 2016 to 2017. The agency also anticipates that 2017-2018 growth may total 780 MBOPD. Global non-OPEC production is expected to rise by 0.7 MMBOPD in 2017 and 1.5 MMBOPD in 2018.
On the whole
Between the EIA and IEA reports, it is generally anticipated that increases in global supply, fueled primarily by non-OPEC production growth, will limit price growth in the coming year. The assumptions made in both reports did not account for production decisions made by OPEC, due to the difficulty of anticipating OPEC’s actions.
OPEC’s production cuts are currently set to expire in Q1, 2018. As of yet, no plans have been announced to extend the OPEC production cuts beyond Q1, 2018.
