EEJ：May 2015

ｃ○ IEEJ 2015

Special Bulletin

A Japanese Perspective on the International Energy Landscape (216)

April 23, 2015

Crude Oil Prices Forecast in the “Annual Energy Outlook” by US EIAKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn April 14, the U.S. Energy Information Administration (EIA) released this year's
long-term U.S. energy supply and demand outlook titled “Annual Energy Outlook (AEO) 2015”.
The AEO published annually by the EIA forecasts supply, demand and prices for each energy source
mainly in the U.S. market, aiming to provide neutral analyses and data for making U.S. energy
policy. The AEO2015 forecasts U.S. energy market supply and demand through 2040, based onlatest market trends.

As described above, the AEO2015 was released on April 14. The previous AEO,AEO2014 (full version) was published on May 7, 2014, after an early release version was put out inDecember 2013. The interval between the early AEO2014 and the AEO2015 was thus as long as 16
months. The latest important energy market change during the period was a substantial crude oil
price plunge. After remaining above $100 per barrel for more than three years, crude oil prices
plunged fast enough to surprise all market participants. How to view the great change in a long-ternenergy supply and demand outlook should have been a key point. The AEO2015 was released
behind the earlier scheduled date in March without any early release version, the reason of which
may be explained the possibility that EIA needed enough time in an attempt to address the crude oil
price plunge as a great change. Incidentally, the EIA indicated a plan to change the way of releasing
the annual AEO. While maintaining a policy of compiling an outlook annually, it plans to publish ashorter version and a full version alternately. The AEO2015 is treated as a shorter version. The EIA
explained that it would change the way in order to efficiently respond to the changing energysituation.

How the crude oil price plunge would influence the AEO attracted attention as the AEO
was the first representative energy supply and demand outlook coming after the oil price plunge.
Other major energy outlooks include the World Energy Outlook by the International Energy Agency
and the World Oil Outlook by the Organization of the Petroleum Exporting Countries. In terms ofschedule, the AEO came as the first long-term outlook responding to the oil price plunge. This is thereason the latest AEO attracted public interest. Particularly, how the AEO would assume crude oilprices over a long time was the focus of attention.
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EEJ：May 2015ｃ
○ IEEJ 2015

In conclusion, the AEO2015 lowers crude oil price forecasts steeply for the immediate
future and more moderately for the medium future in response to the actual price plunge since thesecond half of 2014. The benchmark Brent crude oil price is forecast at an average $56/barrel for2015 in real terms for a reference scenario (the same hereinafter), down a sharp $41/barrel from$97/barrel in the AEO2014. But the AEO2015 does not view the present price levels as sustainable.
But it predicts the benchmark price to rise back above $70/barrel in and after 2016 and to $79/barrel
in 2020, based on a projected expansion in oil demand and a likely stagnation in high-cost oilproduction. The forecast for 2020 is about $17/barrel lower than $97/barrel in the AEO2014. The
nearly $20/barrel downward revision is made for the 2020s, indicating that the market changebrought about by the actual crude oil price plunge has forced the AEO forecast to change over a
medium term (in the downward direction).
Over a longer term, however, the recent oil price plunge’s impact on price forecasts fades
away. The forecast of $106/barrel for 2030 in the AEO2015 represents a $13/barrel downward
revision, smaller than for 2020. The trend of narrowing revisions is sustained for later years, leading
the forecast for 2040 to match $141/barrel in the AEO2014. This means that high-cost oil supply will
be required to meet a demand expansion with OPEC’s market share still rising, leading crude oil
prices to rise far beyond $100/barrel. The recent crude oil price plunge is thus taken as bringing
about a downward revision of oil price forecasts for a medium term while exerting no impact for thefurther future. This may mean that crude oil prices must not only decline but also stay low for acertain period of time to force long-term crude oil price assumptions to be changed. In fact, whencrude oil prices remained in a slump in the 1990s, the EIA continued to revise oil price forecasts
downward and projected that crude oil prices would level off over a long term.

In this sense, we may have to continue a close watch on future crude oil price trends andtheir impact on the EIA’s market view. After the AEO2015 became the first major outlook to put
forward a long-term crude oil price forecast in response to the recent oil price plunge, the IEA andOPEC will announce new outlooks toward autumn. In last year’s outlooks, crude oil prices wereprojected by the IEA at $123/barrel (the IEA import price) and by OPEC at $99/barrel (the OPECbasket price) for 2030 and at $132/barrel and $102/barrel for 2040 respectively. These forecasts forthe far future, though differing from the EIA projections, thus exceed $100/barrel in common. We
will have to pay attention to how the IEA and OPEC forecasts will be revised in response to therecent oil price plunge or whether they will be revised or not. This is because long-term crude oil
price projections can exert a great impact on the entire energy policy, including energy security, as
well as on the international oil market.
Contact: report@tky.ieej.or.jp
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