Crude Oil Prices to Rise in 2023, 2024 Amid Tighter Supplies: EIA

The sun behind a crude oil pump jack in the Permian Basin in Loving County, Texas, on Nov. 22, 2019. Angus Mordant/Reuters

Crude oil prices will be higher in 2023 and 2024 as global supplies become tighter, the U.S. Energy Information Administration (EIA) predicted on June 6 in its latest Short-Term Energy Outlook (STEO).

The EIA forecasts that the average spot price for Brent, the international benchmark for global oil prices, will be $79.54 per barrel this year, up 1.1 percent from its previous forecast of $78.65. Brent prices will then climb to $83.51 a barrel in 2024, up 12.1 percent from the last STEO estimate of $74.47 a barrel.

OPEC+ members’ expected cuts to crude production through 2024 will weigh on worldwide oil inventories in each of the next five quarters, EIA researchers say.

“We expect these draws will put some upward pressure on crude oil prices, notably in late-2023 and early-2024,” the STEO stated.

Global consumption is expected to climb by 1.6 million barrels per day (bpd) from last year’s average of 99.4 million bpd. Demand will grow by an extra 1.7 million bpd in 2024, driven primarily by non-Organisation for Economic Co-operation and Development (OECD) countries, particularly China.

In addition, consumption of liquid fuels, including gasoline and jet fuels, might touch new record highs in 2023 and 2024.

“We expect to see demand for travel continue to increase, which drives our forecast for record consumption of petroleum products,” EIA Administrator Joe DeCarolis said in a statement. “The petroleum market remains highly uncertain, so we will continue monitoring developments and tracking supply and demand dynamics.”

U.S. crude oil production estimates were revised higher for 2023 and 2024 by 0.6 percent and 0.7 percent, respectively. Domestic output is projected to reach 12.6 million bpd this year and 12.8 million bpd next year.

According to separate EIA data, U.S. crude output tumbled to 12.2 million bpd for the week ending May 26. For much of 2023, domestic production growth has stalled between 12.2 and 12.3 million bpd, below the pre-pandemic high of 13.1 million bpd.

Moreover, the number of active U.S. rigs drilling for oil tumbled to a 14-month low of 555 for the week ending June 2. This also represented the fifth consecutive weekly decline.

Natural gas markets are expected to experience greater supply complemented by tumbling prices.

Flared natural gas is burned off at Apache Corporation operations at the Deadwood natural gas plant in the Permian Basin, Garden City, Texas, on Feb. 5, 2015. Spencer Platt/Getty Images

The STEO forecasts dry natural gas production totaling approximately 103 billion cubic feet per day in 2023 and 2024, up nearly 2 percent from the previous forecast. This will weigh on natural gas prices as they are expected to average $2.66 per million British thermal units (Btu) this year and $3.42 per million Btu next year, down roughly 8 percent from the previous STEO.

For the broader U.S. economy, the EIA predicted the real gross domestic product (GDP) growth rate will be 1.3 percent this year and 1 percent next year, a downward revision from 1.6 percent and 1.8 percent, respectively.

Chaos in Oil Markets

At the OPEC+ meeting in Vienna on June 4, Saudi Arabia announced it would institute a voluntary one-month 1-million-barrel-per-day reduction beginning in July, which officials say could be extended. The cartel and its allies would keep their planned crude output cuts for 2023 intact, but OPEC+ confirmed that it would limit the combined oil production to 40.463 million bpd in 2024.

Market analysts purport that this decision would help establish a price floor of $70. Prices could rise much higher in the second half of 2023 amid expectations of supply deficits.

Fatih Birol, the International Energy Agency’s executive director, told a meeting of global airline leaders that the recent agreement could exacerbate already fragile supply conditions, resulting in higher prices.

“The possibility of prices going up is a lot more likely after OPEC+ decision on Sunday,” he said. “There’s an imbalance in the oil market in the second half of this year already; it'll worsen after the OPEC+ decision.”

Amid the market developments that would typically be bullish for the energy market, July West Texas Intermediate (WTI) crude futures slipped 0.6 percent to finish the June 6 trading session at $71.74 a barrel on the New York Mercantile Exchange. August Brent crude futures also tumbled close to 0.6 percent to $76.29 per barrel on the ICE Futures.

Saudi Minister of Energy Prince Abdulaziz bin Salman Al Saud arrives for the 186th Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna on June 3, 2023. JOE KLAMAR/AFP via Getty Images

Phil Flynn, a senior market analyst at The PRICE Futures Group, warned that investors are “dismissing the looming supply deficit” and instead “betting on a global economic slowdown.”

“Oil is also getting hit on whisper numbers that could suggest a surprise crude oil supply increase,” he wrote in a research note. “It was reported that the U.S. released 1.8 million barrels from the SPR and talk those exports of oil weakened because of the Memorial Day holiday. If correct, then the worries of the coming supply deficit will be pushed back, at least until the big drawdown that more than likely will come next week.”

Gasoline demand dropped 3.6 percent week-over-week to 9.098 million barrels for the week ending May 26.

Gas prices have also been little changed over the past month as the national average for a gallon of gasoline is $3.545, according to the American Automobile Association (AAA). If current trends persist, motorists could enjoy a breather at the pump, AAA spokesman Andrew Gross says.

“Although millions hit the road last weekend, gasoline demand fell,” he noted. “Meanwhile, the cost for a barrel of oil dropped below $70 per barrel. Pump prices could dip further as the start of summer approaches.”

China has played a role in the subdued performance of crude oil. The post-pandemic rebound has struggled to be as strong as many economists and market analysts had initially anticipated.

Financial markets were disappointed after the National Bureau of Statistics’ (NBS) Manufacturing Purchasing Managers’ Index (PMI), which serves as a measurement of a sector’s direction, contracted for the second consecutive month, falling to 48.8 in May from 49.2 in April. The non-manufacturing PMI also eased to 54.5, while the general PMI slipped to 52.9.

That’s crucial data because China is the world’s largest crude importer. In April, China’s crude imports declined 16 percent to 10.36 million bpd. That’s 1.4 percent less than a year ago, marking the first year-over-year decrease since February.