Brent crude oil spot prices averaged $72/bbl in April, an increase of $6/ bbl from the March level and the first time monthly Brent crude oil prices have averaged more than $70/bbl since November 2014. In its latest Short-Term Energy Outlook, the US Energy Information Administration forecasts that Brent crude oil spot prices will average $71/ bbl in 2018 and $66/bbl in 2019.
These are $7/bbl and $3/bbl higher, respectively, than in the April STEO. EIA expects West Texas Intermediate crude prices to average $5/bbl lower than Brent prices in both 2018 and 2019. The movement of oil prices reflect the continuous drawdown of global petroleum inventories. Since January 2017, the beginning of the crude oil production cut agreement among certain countries within and outside the Organization of Petroleum Exporting Countries, global petroleum inventories have declined at an average rate of more than 500,000 b/d.
Excluding Libya, Nigeria, and Equatorial Guinea—countries not subject to the production reductions—OPEC countries produced an estimated 29.3 million b/d in April, the lowest levels since April 2015 and 400,000 b/d below the agreed-upon production reductions. Oil prices may have also risen in anticipation of the potential reinstitution of US sanctions on Iran, which could contribute to declines in the country’s crude oil production.. Further, strong global oil demand growth has added to upward price pressures.
EIA estimates that global oil consumption in this year’s first quarter was 1.9 million b/d, or 2% higher than it was in first-quarter 2017. Backwardation also increased in April and reached the highest levels since 2014, indicating high demand for immediate oil deliveries. The increase in the backwardation of crude oil prices suggests there is an incentive for holders of oil in physical storage to sell on spot markets.
Hence, STEO estimates that US commercial crude oil inventories in April were 1.5% lower than the 5-year average for that month, and total petroleum inventories in countries within the Organization for Economic Cooperation and Development are estimated to have ended April slightly below the fiveyear average.
