In classical microeconomic theory, as supply goes up the price is supposed to come down. Things often get a lot more complicated in the real world, where macroeconomic shifts have to factor in many facets beyond raw supply and demand figures. This can become particularly difficult to assess in the commodities markets, especially in energy, with factors such as delivery issues, geopolitics, weather disruptions, currency fluctuations and much more.

The U.S. Energy Information Administration (EIA) has a new short-term forecast that calls for both higher oil prices and higher U.S. crude oil production. That said, production from other sources is expected to decline, even as supply disruption risks are high.

The EIA indicated that Brent crude oil spot prices averaged $71 per barrel in April. That’s up $5 from March and just below the price in April of last year. The EIA now forecasts Brent spot prices to average about $70 per barrel in 2019 and $67 per barrel in 2020. Both figures are roughly $5 per barrel higher than the short-term forecasts made in April. It also compares to an average of $71 per barrel in 2018. The EIA signaled that the higher Brent crude oil price forecast reflects tighter expected global oil market balances in mid-2019. It also sees increasing supply disruption risks globally.

West Texas Intermediate (WTI) crude averaged $50.79 per barrel in 2017 and $65.06 in 2018, and the EIA sees average per barrel prices of $62.79 in 2019 and $63.00 in 2020.

An updated forecast for Organization of the Petroleum Exporting Countries (OPEC) crude oil production is an average of 30.3 million barrels per day in 2019. That is down by 1.7 million barrels per day from 2018, and in 2020 the EIA expects OPEC crude oil production to fall by about 0.4 million barrels per day to an average of 29.8 million. The EIA noted:

Production in Venezuela and Iran account for most of the OPEC output declines in 2019 and in 2020, but EIA expects these declines to be partially offset by production increases from other OPEC members.

As far as inventories, the EIA’s May forecast shows that global oil inventories will decline by 0.2 million barrels per day in 2019 and then increase by just 0.1 million barrels per day in 2020. The EIA clarified these figures as follows:

Global demand outpaces supply in 2019 in EIA’s forecast, but global liquid fuels supply then rises by 1.9 million barrels per day in 2020, with 1.5 million of that growth coming from the United States. Global oil demand rises by 1.5 million barrels per day in 2020 in the forecast, up from expected growth of 1.4 million barrels per day in 2019.

U.S. consumers also should brace for slightly higher prices at the gasoline pump this summer. The EIA forecast for the 2019 summer driving season is for regular gasoline retail prices to average $2.92 per gallon. That’s up from an average of $2.85 in the summer of 2018. The EIA noted that the higher gasoline price expectation was due primarily to expected higher gasoline refining margins this summer, despite slightly lower crude oil prices.

The EIA makes regular forecasts that can influence certain policy-making decisions in the energy sector. That said, the EIA forecasting is far from perfect and their crystal ball isn’t generally any better at predicting unknown market-moving events ahead of time. Then again, if gasoline prices are being forecast to remain relatively static even for the next year, then it spells good news on keeping consumer and wholesale inflation in check.

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