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Crude is Forecast to Move Lower

David Becker
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Crude oil prices on a WTI basis have recently recaptured the $100 per barrel level, but the outlook for petroleum is for lower prices as the US continues to ramp up supply and other non-opec crudes exceed demand growth.

In its May Short-Term Energy Outlook the Department of Energy in the United States, forecasts that the spot price of North Sea Brent crude oil will fall through the remainder of 2014, declining from current levels of $108 per barrel to average $103 per barrel during the fourth quarter.

For full-year 2014, the Energy Information Administration, which is part of the Department of Energy, expects the Brent price to average $106 per barrel, down $2 from the 2013 average, but more than $1 higher than last month´s forecast. EIA expects crude prices to decline through the end of the year as demand for OPEC crude falls to offset the combined increases in non-OPEC total liquids supply and OPEC non-crude supply, which are projected to exceed growth in world liquids demand.

While growing U.S. crude oil production is expected to contribute to lower global crude oil prices, the downward pressure on the price of U.S. crude is expected to be more significant than Brent. EIA expects the price of West Texas Intermediate crude to decline at a slightly faster pace than the price of Brent through the rest of the year.

In April, WTI traded at an average discount to Brent of $6 per barrel. EIA expects this discount to widen to an average of $10 in the third quarter and $12 in the fourth quarter; thus, WTI is expected to fall to an average of $92 per barrel in the fourth quarter. The widening spread reflects the economics of running increasing volumes of very light crude oil at U.S. Gulf Coast refineries and the transportation costs of moving U.S. crude oil production to marginal markets on the U.S. East and West Coasts.

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