EIA revises oil price forecast after OPEC announces production cuts

OPEC’s recent plans to cut oil production by 1.2 million barrels per day through the end of this year led the U.S. Energy Information Administration (EIA) to increase its oil price projections by 2.5% for 2023. Still, U.S. household gasoline costs are expected to be lower this year compared to last year.

The EIA released Tuesday (April 11) the April Short-Term Energy Outlook that shows the international benchmark Brent crude oil spot price to be an average of $85 per barrel in 2023, up $3 from its March projections.

Despite the planned cut, global production of liquid fuels, including gasoline, diesel and jet fuel, is still expected to exceed 101 million barrels per day for the first time in 2023.

“The OPEC+ production cut is certainly significant, but we expect growing global production – especially in North and South America – to offset those cuts,” said EIA Administrator Joe DeCarolis. “We expect that world oil production and demand for petroleum products will be relatively balanced this year. The biggest risk to our April forecast is slower-than-expected economic growth, which would limit growth in demand for fuels such as gasoline and jet fuel.”

This summer, U.S. gasoline prices are expected to be an average of about $3.50 per gallon and reach a peak of between $3.60 and $3.70 a gallon in June. U.S. gasoline production is expected to increase more than consumption in 2023, leading to higher gasoline inventories, lower prices and higher exports compared with 2022.

The EIA also released a report on summer gasoline prices that include how the cost of gasoline factors into how much households spend on gasoline.

“Across the oil price cases we examined, our models still showed average U.S. household gasoline expenditures remaining lower than last year,” DeCarolis said.

U.S. electricity generation from coal is expected to fall about 17% this spring from the same season last year. About 5% of U.S. coal-fired generation capacity retired over the past 12 months. Natural gas prices also declined from the same time last year and have contributed to coal being less economical for electricity generation this spring.

“Lower natural gas prices and growing generation from renewable sources should replace costs for generating electricity this summer compared with last summer,” DeCarolis said.