The reasons of next oil prices higher

OPEC is attempting to buoy prices just as US production appears to be slowing. In March the EIA released its Short-Term Energy Outlook which forecasts that crude oil prices will be slightly higher in 2019 due to tighter inventories. Crude oil inventory levels remain above the 5-year average range in the US. Demand is slightly higher than normal for this time of year. The rising in crude oil prices is driving the price action in most commodities.

The Energy Information Administration recently revised its crude oil forecast pushing it up slightly due to a forecast of tighter inventories. The EIA now sees WTI prices increasing in tandem with Brent with a spread of approximately $9 per barrel. It sees Brent prices averaging $63 dollar per barrel in 2019 which puts WTI prices at $54 per barrel. The EIA also sees the spread between Brent and WTI narrowing in the Q4 of 2019 which provides some leeway for higher prices. It also sees the spread remaining near $4 per barrel for all of 2020.

One of the reasons the Department of Energy sees crude oil prices rising is that it believes that the production of crude oil will decline. In the latest Inventory report from the Department of Energy, US crude oil production dropped 100K barrels. This is one of the first drops in weekly production levels in near 6-months. While the volume remains above 12-million barrels a day, it is the direction that is more interesting.

The production forecast that was issued by the EIA was revised down more than the consumption forecast, and as a result, global stock builds are expected to be lower, indicating a relatively tighter market balances that the February forecast issued by the Energy Information Administration

The EIA is reducing its production forecast for both 2019 and 2020 compared with the February forecast, despite an expected increase in pipeline capacity to move crude oil out of the Permian region. Recall, that one of the issues that analysts saw in 2018 was that the US drilling and pipeline infrastructure was hamstrung because of the lack of capacity. Baker Hughes, the oil service giant recently reported that the oil rig count reached a 10-month low of 834 rigs as of March 8, suggesting the rate of US crude oil production growth could slow further. Although lower than the February forecast, EIA still forecasts crude oil production to increase by 1.3 million barrels a day in 2019 and 0.7 million barrels per day in 2020.

The EIA forecasts OPEC crude oil production will average 35.9 million barrels a day in 2019 and 35.6 million barrels a day in 2020, down by 150,000 barrels a day, compared with the February STEO forecast. Saudi Arabia cut crude oil production by more than expected in February and averaged 10 million barrels a day, the lowest level since April 2017. With OPEC putting on the breaks and US production declining, inventories could contract to send crude oil prices higher.