Brent crude oil prices are expected to be an average of $71 per barrel in 2018, according to the U.S. Energy Information Administration. This is $7 more per barrel than the EIA estimated it would be in April. Meanwhile, the retail price for regular gasoline is expected to rise to an average of $2.79 per gallon in 2018, 15 cents a gallon higher than EIA’s April projection.
Spot prices for Brent crude oil, an international pricing benchmark, have increased in nine of the past 10 months, averaging $72 per barrel in April. Crude oil prices for West Texas Intermediate (WTI), a domestic pricing benchmark, are expected to be $5 per barrel less than Brent prices in 2018. U.S. gasoline prices tend to follow Brent prices, and in late April, spot prices for Brent crude oil rose to $76 per barrel, the highest level in almost four years.
Brent crude oil prices have likely been rising because of falling global oil inventories, rising market perceptions of geopolitical risks and strong signs of global economic growth, according to the EIA.
In each of the past five quarters (between January 2017 and March 2018), global oil inventories have declined almost 600,000 barrels per day. At the end of April, oil inventories for countries in the Organization for Economic Cooperation and Development (OECD) were 3% lower than the previous five-year average (2013-2017) in the number of days of supply. It was the largest percentage below the five-year average since March 2014.
Since the EIA released the most recent 2018 projections May 8, geopolitical risks have arisen, including the restart of oil sanctions against Iran and the results of the May elections in Venezuela. The outcome of these events might lead to further reductions in global oil supplies, according to the EIA. The same day the EIA’s May projections were released, President Donald Trump announced the United States would withdraw from the Joint Comprehensive Plan of Action with Iran, and the EIA will consider the impact of this in its June 12 projections.
Also, global consumption of liquid fuels has increased, and in 2018, the global oil consumption-weighted gross domestic product (GDP) is expected to rise at the highest rate since 2012. Increased GDP growth might lead to a rise in oil consumption beyond projected levels, causing a rise in crude oil prices and impacting market movements in equities, bonds and other commodities that are often correlated with changes in crude oil prices.