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September 2006

Vol. 11, No. 38 Week of September 17, 2006

$70 WTI crude oil spot in ’06-’07

Henry Hub natural gas spot prices expected to average $7.51 per mcf in ’06, down from ’05 $8.86; $8.30 expected in ‘07

Petroleum News

Crude oil prices fell during most of August and into early September and the West Texas Intermediate crude oil spot price is projected to average around $70 a barrel in 2006 and 2007, the U.S. Department of Energy’s Energy Information Administration said in its Sept. 12 short-term energy outlook.

The agency projects that Henry Hub natural gas spot prices will increase this winter, but expects a 2006 average of $7.51 per thousand cubic feet, $1.35 lower than the 2005 average, but increasing to $8.30 per mcf next year, “assuming high oil prices, normal weather and continued economic expansion in the United States.”

World petroleum consumption growth is estimated at 1.2 million barrels per day this year and 1.7 million bpd in 2007, reflecting a downward revision for the second consecutive month, the agency said, “in response to slower-than-expected demand growth in the Organization for Economic Cooperation and Development countries.” The United States and China are expected to account for more than half of demand growth in 2007; demand growth is also expected to be strong in Middle Eastern oil-exporting countries.

“Surplus world crude oil production capacity, all of which is located in Saudi Arabia, is expected to increase slightly in 2007,” the agency said. “Because only limited increases to surplus capacity are expected during the forecast period, existing and potential supply problems throughout the world will continue to raise concerns,” and with the continued tight supply-demand balance, the agency said it “expects little relief from current pricing patterns.”

Non-Organization of Petroleum Exporting Countries’ production growth averaged 0.3 million bpd in the first half of the year compared to the same period in 2005; annual growth in 2006 is expected to be around 0.6 million bpd.

Both Russia’s Sakhalin 1 project and the United Kingdom’s Buzzard field are expected to come online in the fourth quarter, although the agency said production at first will be limited.

The American Petroleum Institute said Sept. 13 that while U.S. crude oil inventories slid in August for the fourth consecutive month, they ended the month at 333.2 million barrels, the highest August ending level since 1998. API said domestic crude production fell to its lowest 2006 level in August at 4.9 million bpd, down 6.4 percent from August 2005, after pipeline corrosion at Prudhoe Bay hampered Alaska production.

U.S. petroleum imports (crude and products) were 13.664 million bpd in August, 65.5 percent of total domestic petroleum deliveries, API said, compared to 64.1 percent in August 2005.

Natural gas inventories were at high levels because of warmer-than-normal weather last winter, but the inventory cushion has slowly eroded over the summer. “In particular, very warm weather at the end of July plus high inventories resulted in the first weekly net drawdown of natural gas inventory during the summer months in at least 12 years.”

The agency said working inventories of natural gas are “expected to start this winter’s heating season at the highest levels since 1990.” These high inventories have helped keep the price of natural gas down. Spot Henry Hub prices averaged $13.44 per mcf in December 2005 but fell to an average of $6.74 per mcf in the second and third quarters. “Barring extreme weather for the rest of the year, we expect the Henry Hub spot price to increase to an average of almost $10 per mcf by this January and then fall back to an average $7 per mcf by next summer,” the agency said.

The Henry Hub spot price averaged $8.86 per mcf in 2005, is expected to average $7.51 per mcf in 2006 and $8.30 per mcf in 2007.

Dry natural gas production is expected to increase by 1.1 percent this year and by 1.5 percent in 2007, while total liquefied natural gas net imports are expected to increase from 630 billion cubic feet in 2005 to 700 bcf in 2006 and 940 bcf in 2007.






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