The federal government is predicting higher oil prices for the rest of the year and into the next because of increased tensions with Iran and Venezuela.
The Energy Information Administration explained Wednesday that it was forced to raise the forecast for the price of oil due to growing supply uncertainties stemming from Trump administration sanctions.
The Energy Department’s analysis arm raised its average price forecast to $70 per barrel in 2019 and $67 per barrel in 2020, which is $5 higher than projections released a month ago in its short-term outlook.
Supply disruptions caused oil markets to be “generally tighter and oil prices to be higher” in 2019 than the agency forecast at the beginning of the year, the agency’s Week in Petroleum analysis read.
The tighter markets are mainly due to OPEC supply cuts that went into effect in December, which were exacerbated by U.S. sanctions on cartel members Iran and Venezuela, the analysis explained.
The analysis said that compliance by cartel members with the production cuts was better than expected. In addition, Venezuela’s production declines were also more than anticipated by the agency. The newest factor was the U.S.’ decision not to renew waivers for countries to continue importing oil from Iran under sanctions, the agency said.
The agency lowered its forecast of Iranian production after sanctions kicked in on May 2. Although Venezuela and Iran account for most of OPEC’s lost production in 2019 and in 2020, EIA expects other OPEC members to pick up the slack.
The Trump administration said it is working with Saudi Arabia and the United Arab Emirates on raising supply to account for disruptions from Iran.
EIA expects the oil supplies to be the tightest in the second and third quarters of 2019, when oil inventories fall by an average of 360,000 barrels per day.
