OREANDA-NEWS. The US Energy Information Administration (EIA) revised its 2016 estimate for average WTI prices for this year up by about $6/bl to $40.32/bl.

The agency also increased its Brent forecast for 2016 by about $6/bl from the previous estimate to $40.52/bl, according to its Short-Term Energy Outlook (Steo).

WTI and Brent prices in 2017 are forecast to average $50.65/bl, up by about $10/bl from the previous forecast.

The higher price forecast largely reflects tighter market balances, particularly for the second half of 2017, based on a stronger outlook for global oil consumption. In addition, a recent increase in global oil supply outages has taken pressure off storage capacity in the near term.

The relative price parity of WTI with Brent is based on the assumption of competition between the two crudes in the US Gulf coast refinery market, as transportation differentials are similar to move the crudes from their respective pricing points to that market.

Parity between WTI and Brent would discourage US exports, which have been slow to take off since the US in December lifted a ban on most exports.

The spread between the two benchmarks for the July contract flipped yesterday, with WTI ending 40?/bl above Brent.

The EIA's price forecast increase comes as the agency predicts a sharp drop in output. US crude production should fall from an average of 9.1mn b/d in the first quarter of 2016 to an average of 8.1mn b/d in the third quarter of 2017. Production is expected to fall most rapidly from April through September this year, by an average rate each month of about 160,000 b/d. Output is then expected to be relatively flat from October 2016 through July 2017 at 8.2mn b/d and move up slightly in the third quarter of 2017 because of likely hurricane related outages.

But the EIA warns that the forecast remains sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators.

Crude production in April averaged 9mn b/d, down by 700,000 b/d from a year earlier.