Concern over the less then steady global growth and higher production of crude oil has caused The U.S. Energy Information Administration (EIA) to lower its 2016 oil forecast. This did not come as a shock to those familiar with the industry since oil futures are trading at their lowest price in six years.
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So what were the new prices forecasted by the Energy Information Administration? In its monthly Short-Term Energy Outlook, the EIA stated that the forecasts would benchmark oil by $8 to $54 per barrel in 2016 and its 2015 forecast by $6 to $49 per barrel. They expect Brent to average around $59 per barrel next year and about $54 per barrel in 2015.
The administration also stated as part of its analysis that “the recent price declines reflect concerns about lower economic growth in emerging markets, expectations of higher oil exports from Iran, and continuing actual and expected growth in global inventories.” This updated forecast was released as U.S. benchmark crude oil fell to $43.15 per barrel near the end of trading on Tuesday. This was a drop of $1.80 or an estimated 4 percent decline. Next month futures, which are said to be the lowest end-of-day settlement in quite some time, are contracted at $43.46. In fact, the only other time oil futures settled this low was during the 2009 financial downturn.
Another factor that is playing a role in the shaky crude oil futures is the devaluing of the Yuan that is taking place in China. This news is affecting the import levels negatively and is causing petroleum markets to be under more selling pressure. At the beginning of the summer, crude oil was looking promising at $60 per barrel. But over the course of the last months it has declined from this high point. At the center of all of the troubles being faced by the oil industry are the unstable markets in China and Greece. Their economic troubles are pointing out the global economies inability to clear the excess of oil they possess.
The Organization of the Petroleum Exporting Countries (OPEC) recently stated that China’s economy, which happens to consume a lot of oil, is forecasted to grow 6.5 percent in 2016. The projection is down from the 6.9 they are currently consuming. This is due to the financial problem Asia is currently facing and will continue to face into next year. Meanwhile in Saudi Arabia and Iraq production is increasing from past quarters. According to the EIA, the U.S. will only continue to see declines in production that could last until the middle of next year.