The U.S. Energy Information Agency (EIA) said on Thursday that the prices of crude oil and gasoline will increase this year.
EIA's May Short-Term Energy Outlook (STEO) forecast that Brent crude oil prices will average 71 U.S. dollars per barrel in 2018, or 7 dollars per barrel higher than last month's STEO. Correspondingly, EIA's forecast for regular gasoline retail prices increased to an average of 2.79 dollars per gallon in 2018, or 0.15 dollar per gallon higher than in last month's STEO.
Monthly average Brent crude oil spot prices have increased in 9 of the past 10 months, most recently averaging 72 dollars per barrel in April.
EIA expected West Texas Intermediate (WTI) crude oil prices to average 5 dollars per barrel lower than Brent prices in 2018.
Even though WTI is a domestic crude benchmark and Brent is an international benchmark, gasoline prices in the United States tend to follow Brent. In late April 2018, daily spot prices for Brent crude oil reached 76 dollars per barrel, the highest level in nearly four years.
Crude oil prices have probably been driven higher for three reasons: falling global oil inventories, heightened market perceptions of geopolitical risks, and strong global economic growth signals.
EIA estimated that global oil inventories fell an average of nearly 0.6 million barrels per day in each of the past five quarters (January 2017 through March 2018). Oil inventories for countries within the Organization for Economic Cooperation and Development (OECD) at the end of April were an estimated 3 percent lower than the previous five-year average (2013-2017) in terms of days of supply, the largest percentage below the five-year average since March 2014.
In April, several geopolitical risks presented sources of uncertainty. These risks, including the re-imposition of oil sanctions against Iran and the upcoming results of May elections in Venezuela, may materialize into actions that remove oil supplies from the global market and, in turn, tighten global oil balances.
The United States announced on Tuesday that it would withdraw from the Joint Comprehensive Plan of Action with Iran. This news and resulting price movements were not reflected in the May STEO, but EIA will consider these developments when formulating the June STEO.
At the same time, global liquid fuels consumption is quickly increasing. EIA estimated global oil consumption-weighted gross domestic product (GDP) growth for 2018 will be at its highest rate since 2012. Greater GDP growth has the potential to increase oil consumption beyond forecasted levels, which could put upward pressure on crude oil prices, and simultaneously drive systemic market movements in equities, bonds, and other commodities, which are often correlated with movements in crude oil prices.
Oil prices edged up on Thursday as investors saw global oil supply declining. According to Societe Generale's estimates, the Venezuelan crude output fell to 1.43 million barrels per day in April, down from 2.03 million barrels per day in July last year. The figure was also lower than that of January this year, which stood at 1.61 million barrels per day.
On Thursday, the WTI for June delivery added 0.22 dollar to settle at 71.36 dollars a barrel on the New York Mercantile Exchange, while Brent crude for July delivery increased 0.26 dollar to close at 77.47 dollars a barrel on the London ICE Futures Exchange.