U.S. Raises 2014 WTI Price Forecast as Brent Spread Narrows

Jun 10, 2014 1:09 pm ET

(Updates with forecast for WTI-Brent spread, EIA economist comments beginning in second paragraph.)

June 10 (Bloomberg) -- The Energy Department increased its price forecasts for West Texas Intermediate crude for 2014, narrowing the U.S. benchmark’s discount to Brent.

WTI will average $98.67 a barrel this year, the Energy Information Administration, the Energy Department’s statistical arm, said in its monthly Short-Term Energy Outlook. That’s up from May’s estimate of $96.59. Brent, the North Sea-based grade, will reach $107.82, up from $106.26. WTI is estimated to trade at a discount of $9.15 to Brent, down from $9.67 in May.

The WTI-Brent spread has averaged $6.66 in the second quarter, according to contracts traded on the London-based ICE Futures Europe, down from $9.41 in the January-March period. The gap narrowed as inventories at Cushing, Oklahoma, the delivery point for WTI futures, decreased and as refineries increased operating rates. The differential will widen to $11 next year, the EIA said.

“We raised the Brent price forecast and raised WTI a little more, reflecting a narrowing WTI discount to Brent in the second quarter,” said Tancred Lidderdale, an EIA economist who helped write the monthly report. “Despite the narrowing, we still expect the WTI discount to widen later this year.”

WTI will average $90.92 in 2015 and Brent $101.92, unchanged from May estimates, according to the EIA.

WTI Discount

WTI for July delivery slipped 26 cents to $104.15 a barrel on the New York Mercantile Exchange today. July Brent dropped 77 cents to $109.22 on the ICE, $5.07 more than WTI.

High seasonal fuel demand and strong refinery runs will keep WTI’s discount around $7 “over the next few months,” the EIA said. The spread will widen to $12 in December.

The EIA decreased its forecast for this year’s U.S. crude output to 8.42 million barrels a day, a 13 percent increase over 2013 levels, from 8.46 million. Output will average 9.3 million in 2015, the highest annual level since 1972.

A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked oil trapped in shale formations in North America. The shares of total U.S. liquid fuel consumption met by net imports will decline to 23 percent next year, the lowest since 1970 and down from 60 percent in 2005, according to the EIA.

U.S. petroleum demand was forecast to reach 18.93 million barrels a day in 2014, unchanged from May. Global consumption may be 91.79 million, up from 91.56 million.