Thursday, April 11, 2013

US government's bearish crude oil forecast

In spite of the Fed's ongoing monetary expansion, the US Department of Energy is projecting a moderate decline in crude prices over the next couple of years. Here is the key component of their rationale:
EIA: - Non-OPEC supply growth, particularly in North America, is expected to keep pace with world liquid fuels consumption growth and contribute to modest declines in world crude oil prices.
Source: EIA

Based on the latest data from EIA, US oil inventories remain elevated while imports continue to decline.
EIA: - U.S. crude oil imports averaged over 7.7 million barrels per day last week, down by 211 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 7.8 million barrels per day, about 1.2 million barrels per day below the same four-week period last year.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.3 million barrels from the previous week. At 388.9 million barrels, U.S. crude oil inventories are well above the upper limit of the average range for this time of year.
Part of the government's assumption in forecasting declining oil prices is the stability of the US dollar.  And that assumption has been holding up well so far, as other major central banks also maintain highly accommodative policies (see post). Aside from geopolitical risks however, dollar strength remains a key factor that could derail the government's bearish forecast on crude prices.
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