The federal government says it’s “uncertain” whether Saudi and Russian oil output will be enough to offset Iran’s cuts after sanctions kick in, according to new projections released on Wednesday.
The Energy Information Administration assumes “some supply increases” coming from major producers in 2019, but a lot is resting on the June 22 meeting of the Organization of the Petroleum Exporting Countries and non-OPEC countries like Russia.
“Depending on the outcome of the June 22 meeting, however, the magnitude of any supply response is uncertain,” it said.
Iran is expected to begin curtailing production around the time of the U.S. midterm elections.
“EIA expects a decline in Iranian crude oil production and exports starting in November 2018, when many of the sanctions lifted in January 2016 are slated to be re-imposed,” it explained. “Iranian crude oil production is expected to fall by 0.2 million [barrels per day] in November 2018 compared with October and by an additional 0.5 million b/d in 2019.”
U.S. oil production is expected to also increase in this period. But where the supply of oil goes will depend a lot on what the OPEC and non-OPEC countries decide next week.
Having less oil on the market drives up cost, while moving more into the market will reduce it. But since oil is a global commodity, its price has a lot to do with production outside the United States.
Gasoline prices nationwide have softened slightly over the last week, but are still 55 cents per gallon higher on average compared to last June, according to the report.
Saudi Arabia said Wednesday that production increases could be considered at the June 22 meeting. U.S. crude oil future contracts dropped to $66 per barrel Wednesday from $73 last month.
Brent crude oil prices, the international benchmark for the price of oil, is expected to average $71 per barrel in 2018, before dropping to an average of $68 in 2019, according to EIA.
The Energy Information Administration “expects” OPEC oil production to remain lower than last year as current supply cuts are slated to continue through the end of 2018.
That may be the reason President Trump tweeted earlier on Wednesday that oil prices are “too high,” griping that “OPEC is at it again,” which is “No good.!” He didn’t explain what he was responding to, specifically.
Trump had tweeted a few weeks ago that oil prices were too high amid a rise in the price of gasoline. The administration has also reportedly communicated that directly to the Saudis.
The EIA’s latest forecast shows OPEC crude oil production averaging 32.0 million barrels per day in 2018, which is a decrease of about 0.4 million barrels per day compared to last year.
But things will change in 2019, with production moving up higher despite sagging output expected from OPEC members Iran and Venezuela.
“Total OPEC crude oil output is expected to increase slightly, however, to an average of 32.1 million b/d in 2019, despite expected falling production in Venezuela and Iran, along with decreasing output in a number of other countries,” the weekly report said.
