WASHINGTON — The federal government forecasts that low oil prices will continue through the year as a result of the global petroleum glut.
Oil prices have plummeted by more than half since a high of $106 a barrel in June, giving motorists the gift of cheap gasoline while wreaking havoc on energy markets and states that rely on oil tax revenue. The U.S. Energy Information Administration forecast Tuesday that the situation is going to continue as producers in America and around the world keep pumping more oil despite the glut.
U.S. benchmark crude prices have plummeted to $45 a barrel. Federal forecasters expect little recovery, estimating an average $55 a barrel price this year.
The agency said Tuesday that it “expects global oil inventories to continue to build in 2015, keeping downward pressure on oil prices.”
The price forecast, released as part of the agency’s short-term energy report, expects a rise to an average of $71 a barrel in 2016 as drilling growth eventually slows in response to the low oil prices, especially in America, and petroleum demand increases in China and the United States. That’s still far lower than in the past few years, though, when prices around $100 a barrel started to seem normal.
Motorists are a big winner in the oil price crash.
Gasoline prices are averaging $2.18 a gallon nationally, according to the AAA motor club, more than $1 a gallon lower than this time last year.
The Energy Information Administration forecasts that gasoline prices are going to average $2.33 a gallon this year and $2.72 next year.
“With lower gasoline prices, the average U.S. household is expected to spend $750 less in motor fuel costs in 2015 than in 2014,” said Adam Sieminski, head of the agency.
A major question, though, is what the price crash will do to the renaissance in American drilling, which has skyrocketed through fracking for oil and gas within shale rock. Some oil companies have reduced spending, and producers are cutting the number of drilling rigs.
Production expected to slow
The federal forecasters believe the low prices will slow, but not stop, the growth in American oil production that has transformed global energy markets.
Major oil companies are expected to follow through on the investments they’ve made in highly productive areas such as the Bakken in North Dakota and Eagle Ford in Texas, even as companies start “redirecting investment away from marginal exploration and research drilling.”
“We see an impact (on U.S.) production but we don’t see a massive downturn,” said Howard Gruenspecht, deputy administrator of the EIA.
The agency expects U.S. drilling activity to start declining in less profitable fields this year as prices average less than $50 a barrel, with production forecast to dip by 190,000 barrels a day through the late spring into summer, before oil prices begin to rebound.
As the prices start going up toward the end of the year, the nation’s “drilling activity is expected to increase again as companies take advantage of lower costs for both leasing acreage and drilling services, causing production to resume rising,” the EIA said in its report.
The agency expects U.S. oil production to average 9.3 million barrels a day this year, up from the 8.7 million barrels a day in 2014.
The EIA forecasts U.S. production to reach 9.5 million barrels a day in 2016, the nation’s second highest output since record drilling in 1970.
The agency warned, though, that its forecasts could be wrong.
“The recent declines in oil prices and associated increase in oil price volatility continue to contribute to a particularly uncertain forecasting environment,” the agency said.