Oil prices could break out of mid-$60/b range
Baku, Azerbaijan, Aug.7
By Leman Zeynalova – Trend:
Brent spot prices will average $64 per barrel in the second half of 2019 and $65 per barrel in 2020, the US Energy Information Administration (EIA) said in its August Short-term Energy Outlook (STEO), Trend reports.
EIA expects West Texas Intermediate (WTI) crude oil prices will average $5.50/b less than Brent prices during the fourth quarter of 2019 and in 2020, narrowing from the $6.60/b spread during July.
“On August 1, Brent and WTI prices declined by more than 7 percent on the day following the U.S. announcement of new tariffs on China, a large decline for a single day. It followed July, a month in which Brent crude oil prices traded in a $6.36/b range, the second narrowest range during any month in the past year. The narrow trading range in July occurred amid offsetting upward and downward oil price pressures,” said the report.
EIA said that continued Middle East tensions presented risks of supply disruptions and higher crude oil prices.
“Iran seized a British tanker in the Strait of Hormuz in late July, but crude oil transit in the region has not been significantly disrupted to date. Continued demand-side concerns have generally added downward price pressure to crude oil prices this month. The International Monetary Fund recently lowered its estimates for global economic growth in 2019 and 2020. In addition, China’s gross domestic product growth for the second quarter of 2019 was 6.2 percent, the lowest growth rate for any quarter since estimates began in 1992. The July manufacturing Purchasing Managers’ Index for the Eurozone, China, and Japan all indicated contraction in manufacturing activity as well,” reads the report.
The combination of oil supply disruption risk and lower economic growth expectations creates uncertainty in the pace of global oil inventory withdrawals and prices, said EIA.
EIA expects Brent prices to increase to $65/b by the fourth quarter of 2019 and remain there throughout 2020.
EIA’s flat crude oil price forecast recognizes that upside and downside price risks and EIA’s forecast for global oil inventory growth are currently balanced. “However, given the uncertainty in the risk factors discussed, prices could break out of the mid-$60/b range if the supply or demand concerns materialize in the coming months.”
Follow the author on Twitter: @Lyaman_Zeyn