US EIA lowers oil price forecast by $2/b despite Middle East uncertainty

The US Energy Information Administration Oct. 8 lowered its 2024 crude price forecasts by nearly $2/b, and by $6.50/b for 2025, as concerns over global demand growth outweighed the short-term uncertainty of potentially disruptive escalation between Israel and Iran in the Middle East.

Concerns over global oil demand growth should cause oil prices to remain lower in 2024 and 2025 than previously forecast, the agency said in its October Short-Term Energy Outlook.

The EIA cut its 2024 forecast for Brent crude by $1.91 to $80.89/b. Citing a $6/b September drop in prices, the EIA also reduced its 2025 Brent outlook by $6.50 to $77.59/b. The agency forecast WTI crude down $1.89 from last month’s estimate for the year, while it lowered by $6.50 its expectation for 2025 to $73.13/b.

"Following the September drop in prices and our expectation that oil demand growth will be lower next year than we had previously forecast, we have lowered our forecast for crude oil prices despite increasing oil prices in early October," the agency wrote in its outlook. "No oil supplies have been affected by increased military action in the Middle East at the time of STEO publication, and we do not assume any disruption in our forecast. However, the conflict has escalated in recent weeks with no timeline for a potential resolution, increasing the possibility for supply disruptions and price volatility. At the same time, we assess that significant surplus crude oil production capacity is available, which could be brought online in the event of a disruption."

Inventories still falling

Thanks to OPEC+ production cuts, less oil is still being produced globally than consumed, and oil is being withdrawn from inventories, the EIA said, estimating global oil inventories fell by 800,000 b/d in the third quarter of 2024. It projected inventories to fall by 600,000 b/d in the first quarter of 2025, fueling its expectation of an increase in current Brent prices, albeit a smaller one than EIA forecast in September.

"By the middle of next year, we anticipate accelerated growth in oil production as OPEC+ increases its production and as production continues to grow in the United States, Guyana, Brazil and Canada," EIA said.

In September, the EIA continued to lower its forecast of global consumption of liquid fuels, thanks in large part to ongoing reductions in China's crude oil imports and refinery runs. The EIA cited recent monetary stimulus that could spur economic growth and greater crude demand in the country, but said it kept its China's expected 2025 growth rate largely unchanged in October.

The agency nudged down its global oil demand outlook by 40,000 b/d for 2024 to 103.06 million b/d, and its 2025 estimate down 250,000 b/d, at 104.35 million b/d.

US gasoline expected to fall in 2025

The lower crude oil forecast pulled down expected US retail gasoline prices. While the EIA maintained its previous expectation of $3.33/gal in the rest of 2024, it saw gasoline prices declining to an average of $3.22/gal in 2025, down 7 cents from last month’s estimate.

The EIA also raised its expectations for 2025 retail diesel prices, putting the fuel at $3.55/gal next year, down 18 cents from the prior estimate. It expects diesel to remain steady in 2024, averaging $3.76/gal, down just 2 cents from its September estimate.

The EIA reduced its 2024 outlook for US oil production by 30,000 b/d to 13.22 million b/d, though it still expects output growth to continue into 2025 to put US crude production at 13.54 million b/d, a 130,000 b/d drop from last month’s estimate driven by a minor expected slowdown in US exploration and production activity, based on recent industry survey results.

This month, the agency also published its 2024 Winter Fuels Outlook, comprising its annual expectations for US residential energy consumption, prices and expenditures during the winter months, sources of which include natural gas, propane and heating oil alongside electricity. The EIA projected those costs to remain broadly level from last winter, with declining energy prices offsetting predictions of colder weather.