U.S energy agency lowers crude oil price forecasts

oil-pricesAmid high uncertainty in the global oil market, the Energy Information Administration (EIA) has lowered crude oil price forecasts in the Short-Term Energy Outlook (STEO), expecting West Texas Intermediate (WTI) prices to average $49 per barrel in 2015 and $54 per barrel in 2016.

Oil prices extended losses on Wednesday, falling to a new 6½-year low, seeing Brent crude, against which Nigeria’s oil is price, and dropping to $48.81 per barrel, a reduction of 0.14 per cent. U.S. crude oil futures, also known as West Texas Intermediate (WTI), fell as low as $41.18, the lowest level since March, 2009.

The price of Organisation of Petroleum Exporting Countries (OPEC) basket of 12 crudes had earlier dropped to $ 45.77 a barrel on Tuesday, compared with $45.96 the previous day.

This is far less than the adopted $53 per barrel as the 2015 budget oil price benchmark. According to the report released on Wednesday, concerns over the pace of economic growth in emerging markets, continuing supply growth, increases in global liquids inventories, and the possibility of increasing volumes of Iranian crude oil entering the market contributed to the changed forecast.

It noted that EIA’s updated projection remains subject to significant uncertainties: the pace and volume at which Iranian oil reenters the market, the strength of oil consumption growth, and the responsiveness of non-OPEC production to low oil prices.

EIA said that WTI futures contracts for November 2015 delivery, traded during the five-day period averaged $47 per barrel, saying these values established the lower and upper limits of the 95 per cent confidence interval for the market’s expectations of monthly average WTI prices in November 2015 at $34 per barrel and $64 per barrel, respectively.

It noted that the 95 per cent confidence interval for market expectations widens over time, with lower and upper limits of $27 per barrel and $103 per barrel for prices in December 2016. “Implied volatility now averages 37 per cent, more than double the implied volatility average this time last year.

The IEA said that global oil supply increased by 550,000 barrels a day in June to 96.6 million barrel per day (mbd), up 3.1m bpd from the same month a year ago. “The market’s ability to absorb that oversupply is unlikely to last. Onshore storage space is limited. So is the tanker fleet. New refineries do not get built every day,” the IEA said.

It noted that the 95 per cent confidence interval for market expectations widens over time, with lower and upper limits of $27 per barrel and $103 per barrels for prices in December 2016. EIA noted that the implied volatility now averages 37 per cent, more than double the implied volatility average this time last year.

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