EIA Raises 2021 Crude Forecast 10%

The EIA published its monthly Short-Term Energy Outlook yesterday, and the news is helping to keep prices from sliding amid higher COVID-19 cases. The US yesterday posted another record-breaking day for infections, reporting roughly 60,000 new cases throughout the country. With some states reversing reopening, many fear a return to low regional demand in some parts of the US.

Despite significant uncertainty, the EIA’s updated forecast shows a number of positive trends. The agency forecasts net crude oil inventory draws to reach 3.3 million barrels per day globally in the second half of 2020, with 1.1 MMbpd withdrawals in 2021. The net result would put crude stocks close to the five-year average by the end of next year. US liquid fuel consumption will fall 2.1 MMbpd in 2020 compared to 2019, but by 2021 that gap will narrow to a meager 0.5 MMbpd.

From a pricing standpoint, the EIA significantly lifted its WTI crude oil forecast. Last month, projections showed prices barely rising to $40/bbl by mid-2021; now, the group expects the average price next year to be $45.70/bbl. Notably, while fuel prices will rise with crude, diesel prices are expected to rise much slower than gasoline. In 2019, retail diesel prices were 45 cents higher than gasoline (note: roughly eight cents of that are due to higher diesel taxes). In 2021, that gap will shrink to 35 cents per gallon.

The API released their inventory report yesterday, showing a surprise inventory build for crude. That build is giving the market some hesitation in moving higher in response to the bullish EIA forecasts. Markets await further information from the weekly EIA report published later this morning.

Crude oil is currently trading flat with Tuesday’s closing price. This week has been oddly quiet for markets, with prices on three consecutive days closing between $40.62 and $40.65. Today, prices are currently $40.64, staying in line with recent closes.

Fuel prices have seen a bit more movement than crude lately. Diesel prices are trading at $1.2466, up 0.3 cents from Tuesday’s close. Gasoline prices are currently $1.2717, down 0.3 cents.