EIA Warns of Worsening Middle East Oil Disruptions, Higher Prices Ahead

The US Energy Information Administration (EIA) has revised its forecast for global oil supplies, citing significant disruptions to Middle East production due to the Iran war. According to the EIA, these disruptions are far worse than previously estimated.

The agency now assumes that the Strait of Hormuz will remain closed through the end of May, longer than its earlier projection of closure through April. This has led to an increase in oil output shut-ins across the Middle East, with 10.8 million barrels per day (bpd) expected to be lost this month, up from 9.1 million bpd in April.

The EIA also reduced its global oil demand forecast by about 400,000 bpd, citing higher prices as a major factor in reducing consumption. As a result, the agency expects global oil inventories to fall 2.6 million bpd this year, up from its earlier estimate of an about 300,000 bpd draw.

According to the EIA, Brent crude oil prices will average around $106 per barrel in May and June, before declining to average around $89 a barrel in the fourth quarter of this year as Middle East production starts to recover. However, if the Strait of Hormuz remains shut through June, oil prices could be about $20 a barrel higher over the near-term compared to current forecasts.