Oil, Gas Prices Will Continue to Climb

Barrels of oil and a stack of coins on the background of a rising graph.

The Energy Information Administration (EIA) recently unveiled its Short-Term Energy Outlook, which is forecasting the price of crude oil to rise about 13 percent or $7/barrel by 2019. The EIA feels the $61/b figure will be driven by slow, but increasing consumption levels that will be offset somewhat by higher global production. In particular, U.S. crude oil production is expected to increase more quickly than any other country.

For gasoline prices, this translates to increases of roughly $0.16/gallon by 2019. The average sale price of gas in 2017 was $2.42/gal. Last year was the lowest annual average price since 2009 and still pales in comparison to the average of $3.37/gal that U.S. consumers were paying as recently as 2014.

Also impacting prices is an increase in Asian demand for crude oil and petroleum products. While this spike in demand is an opportunity for U.S. producers, it comes at a cost to consumers in the region. It’s estimated that U.S. oil carries a $0.50/b premium over oil from the North Sea, due to the longer and more difficult shipping route. 

The EIA also estimates that the difference between total world consumption and total world production averaged 400,000 barrels per day in 2017, marking the first year of global inventory draws since 2013. This condition was most likely the result of over-production that drove prices down over the last five years. The EIA expects global inventories to increase by 300,000 b/d in 2019.

Contributing to the difference between production and consumption was a 200,000 b/d decrease in oil production by the Organization of Petroleum Exporting Countries. OPEC and non-OPEC participants agreed on November 30, 2017, to extend production cuts through the end of 2018 in an effort to reduce global oil inventories. The EIA anticipates OPEC production to increase by 500,000 b/d in 2019 as it slowly returns to pre-agreement levels.

U.S. crude oil production is being forecast to average 10.3 million b/d in 2018, marking the highest annual average production in U.S. history. These levels of U.S. crude oil output are expected to continue increasing in 2019 to an average of 10.8 million b/d.

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