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EIA sees volatility for spot oil prices Agency expects $70-per-barrel average for West Texas Intermediate in fourth quarter; natural gas inventories likely to set record Kristen Nelson Petroleum News
While it expects crude oil spot prices to continue to be volatile, the Energy Information Administration also expects that the range of those prices will be narrower than earlier this year and last year.
The agency said West Texas Intermediate, in the $67-to-$74-per-barrel range in August, is projected to average about $70 per barrel in the fourth quarter, up $27 from the first quarter. EIA said Sept. 9 in its monthly short-term forecast that it is forecasting average WTI prices to rise gradually to about $75 by the end of the year as world economic conditions improve. It expects the Organization of Petroleum Exporting Countries to maintain its existing production targets as long as oil prices remain in their current range.
The monthly Henry Hub natural gas spot price is expected to average $2.32 per thousand cubic feet in October, the lowest monthly spot price since October 2001.
EIA also said it expects natural gas inventories to set a new record high Oct. 31, the end of the year’s injection season, at more than 3.8 trillion cubic feet.
The Henry Hub spot price for the year is expected to average $3.65 per thousand cubic feet, and rise to $4.78 in 2010. EIA said upward price pressure is limited by the sensitivity of the use of natural gas in electric power generation to gas prices and by continued U.S. expansion of shale gas formation production.
Global consumption down EIA said preliminary data indicate global oil consumption declined by 3 million barrels per day in the second quarter, with members of the Organization for Economic Cooperation and Development accounting for most of the decline and non-OECD consumption virtually unchanged. The world economy is expected to recover at the end of the year, led by non-OECD Asia.
EIA said that recovery would result in growth in oil consumption in the fourth quarter, the first growth in five quarters.
Non-OPEC supply averaged 50.1 million bpd in the second quarter, 0.3 million bpd higher than the 2008 second quarter, with the largest growth from Central and South America and the Former Soviet Union, offset by a decline in Europe.
OPEC production averaged 28.7 million bpd in the second quarter, down 3 million bpd from peak production in the third quarter of 2008.
OECD commercial oil inventories were some 2.74 billion barrels at the end of the second quarter, 61 days of forward cover and well above average levels for that time of year.
EIA said it expects OECD oil inventories to remain above average because of weakness in global oil consumption and continuing contango in the futures market — relatively high future prices compared with current prices.
Natural gas consumption declining EIA is projecting a 2.4 percent decline in U.S. natural gas consumption in 2009 and flat consumption next year.
The agency said that despite low relative prices for much of the year, U.S. industrial natural gas consumption declined 12 percent in the first six months of the year compared with the same period in 2008. Natural gas use in the electric power sector is expected to increase by 4.3 percent year-over-year during the second half of 2009.
Total U.S. marketed natural gas production is expected to increase by 0.9 percent this year and fall by 3.5 percent in 2010.
There has been a 20 percent drop in prices and a 45 percent drop in working natural gas drilling rigs since the start of the year, EIA said, but natural gas production increased slightly from January to June of this year, reflecting “significant improvements in horizontal drilling technology and robust productivity from shale gas discoveries in Louisiana, Oklahoma, Arkansas and Pennsylvania.”
Data compiled by Smith International show a 65 percent decrease in drilling activity in vertically directed natural gas rigs, but only a 27 percent reduction in activity in working horizontal rigs, which now represent more than half of the active natural gas drilling fleet.
Record storage levels U.S. natural gas inventories are at record-high levels, EIA said, so some curtailment of production is expected, with a 5.7 percent decline in marketed production from Lower 48 non-Gulf of Mexico projected between the first and second half of the year.
U.S. liquefied natural gas imports are expected to increase to some 460 billion cubic feet in 2009 from 350 bcf in 2008 and rise to about 660 bcf in 2010, the agency said.
Working natural gas in storage was 3.323 trillion cubic feet on Aug. 28, EIA said, 501 bcf above the five-year average from 2004-08 and 489 bcf above the corresponding week last year.
The agency said it expects working natural gas inventories to reach 3.84 tcf on Oct. 31, the end of the injection season, 275 bcf above the previous record of 3.565 tcf at the end of October 2007.
The Henry Hub spot price averaged $3.23 per thousand cubic feet in August, 25 cents below the July average spot price.
“Prices continue to be pushed lower as robust production adds to already high inventories,” the agency said, adding that spot prices could fall in the period between dropping demand for air conditioning and higher demand for space heating.
EIA expects natural gas prices to rise modestly in 2010, “reflecting increased economic activity and lower production levels as a result of the current drilling pullback.” But it will take some time to work off the current production levels, the agency said, and enhanced production capabilities are expected to limit significant increases in price.
The Henry Hub spot price is expected to average $3.65 per thousand cubic feet this year and $4.78 in 2010.
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