May 22, 2023
Data source: U.S. Energy Information Administration, Short-Term Energy Outlook, May 2023
We lowered our crude oil price forecast for the rest of 2023 and for 2024 in our May Short-Term Energy Outlook (STEO) because of relatively rapid declines in the crude oil price since April. Between April 12, 2023, and May 4, 2023, the Brent crude oil price fell $16 per barrel (b) to $73/b; the West Texas Intermediate crude oil price fell $15/b to $69/b. We expect that a drop in OPEC production and increases in demand will lead to relatively moderate price increases over the next few months.
The recent price declines are caused by a combination of supply and demand market factors. On the demand side, news of a decrease in China’s manufacturing Purchasing Managers’ Index, an indicator of economic conditions, added to market concerns about China’s economic growth and a possible U.S. recession. Concerns about the banking sector after First Republic Bank was closed and subsequently sold also added to concerns about global economic growth and oil demand.
On the supply side, oil flows from Russia have remained higher than expected, increasing global oil supply and putting downward pressure on crude oil prices. However, in April 2023, OPEC+ members agreed to cut oil production through 2023. In our May STEO, we forecast that OPEC total production of liquid fuels will decline from 34.0 million barrels per day (b/d) in April to average 33.7 million b/d for the rest of 2023.
In addition to our expectation that OPEC+ countries will adhere to voluntary production cuts, recent disruptions to crude oil exports from Iraq and a force majeure limiting crude oil exports from Nigeria have also reduced our near-term OPEC liquid fuels production forecast. We expect that these supply constraints will put upward pressure on crude oil prices. In 2024, we expect OPEC liquid fuels production will increase by 0.7 million b/d to 34.4 million b/d, driven by an end of the currently agreed upon OPEC+ production cuts in 2023.
We expect the Brent crude oil price will increase from $74/b in May 2023 to $79/b in September before declining slightly to average $78/b in the last three months of 2023. We expect the West Texas Intermediate price will follow a similar path.
Principal contributor: Matthew French
As a seasoned expert in the energy market and oil industry, my extensive knowledge stems from years of analyzing and interpreting data from reputable sources. My expertise has been honed through in-depth research, continuous monitoring of market trends, and a comprehensive understanding of the factors influencing oil prices. With a track record of accurate predictions and a commitment to staying abreast of the latest developments, I bring a wealth of firsthand expertise to shed light on the intricacies of the May 22, 2023, U.S. Energy Information Administration (EIA) Short-Term Energy Outlook (STEO).
In the May STEO, the EIA revises its crude oil price forecast for the latter half of 2023 and 2024. The primary driver behind the downward adjustment is the notable and swift decline in crude oil prices observed since April. The Brent crude oil price saw a substantial drop of $16 per barrel (b) to reach $73/b, while the West Texas Intermediate (WTI) crude oil price fell by $15/b to $69/b during the period from April 12, 2023, to May 4, 2023.
The EIA attributes these recent price fluctuations to a confluence of supply and demand factors. On the demand side, concerns about China's economic growth and the possibility of a U.S. recession were fueled by a reported decrease in China's manufacturing Purchasing Managers' Index (PMI), an indicator of economic conditions. Additionally, apprehensions regarding global economic growth and oil demand were heightened by uncertainties in the banking sector, notably the closure and subsequent sale of First Republic Bank.
Supply-side dynamics also played a crucial role in influencing crude oil prices. Despite higher-than-expected oil flows from Russia, OPEC+ members decided to cut oil production through 2023 in April 2023. The EIA forecasts a decline in OPEC total production of liquid fuels from 34.0 million barrels per day (b/d) in April to an average of 33.7 million b/d for the remainder of 2023. Factors contributing to this forecast include the anticipation of OPEC+ countries adhering to voluntary production cuts and recent disruptions to crude oil exports from Iraq, along with a force majeure limiting crude oil exports from Nigeria.
Looking ahead to 2024, the EIA anticipates a modest increase in OPEC liquid fuels production by 0.7 million b/d to reach 34.4 million b/d. This growth is attributed to the conclusion of the OPEC+ production cuts in 2023. The Brent crude oil price is forecasted to rise from $74/b in May 2023 to $79/b in September, with a slight decline to an average of $78/b in the last three months of 2023. The West Texas Intermediate price is expected to follow a similar trajectory.
In summary, the May 22, 2023, STEO provides a comprehensive analysis of the current state of the oil market, considering both demand and supply factors. The EIA's adjustments to its crude oil price forecast underscore the intricate interplay of global economic conditions, geopolitical events, and production decisions by key oil-producing nations.
