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EIA projects $70 oil in fourth quarter Henry Hub spot price expected to average less than $4 per mcf this year, rise to $5.48 in 2010 based on current decline in drilling Petroleum News
The U.S. Department of Energy’s Energy Information Administration said Aug. 11 that it expects the West Texas Intermediate crude oil price to remain roughly flat at $70 per barrel in the fourth quarter, an increase of some $27 compared with the first quarter. The agency noted recent volatility in the WTI Price — from $71.47 on June 29 to $59.62 on July 14 and then up to $71.59 on Aug. 3 — and said it is projecting the WTI spot price to “rise slowly as economic conditions improve, to an average of about $72 per barrel in 2010.” This compares to a 2008 average of $100 per barrel.
The agency expects the monthly average Henry Hub natural gas spot price to stay below $4 per thousand cubic feet until late in the year as natural gas inventories are projected to set a new record high Oct. 31, the end of the year’s injection season. EIA expects the Henry Hub to increase from an average of $3.92 per mcf this year to an average of $5.48 per mcf in 2010, based on the current decline in drilling and projected growth in consumption next year.
Global economy “The oil market continues to be defined by the tension between optimism over the perceived recovery of the global economy on the one hand and persistently weak global consumption of crude oil and other liquid fuels on the other,” the agency said.
Oil consumption could be recovering outside developed countries represented by the Organization for Economic Cooperation and Development. But that has been somewhat offset by “an erosion of compliance with production cuts” among members of the Organization of Petroleum Exporting Countries.
Rising oil inventories, combined with weak current consumption, indicate overall weakness in the market, EIA said.
Commercial crude oil and petroleum product stocks in the United States have increased for five straight quarters, the first time that has happened since 1979-80, and another increase is projected for the third quarter.
World oil consumption declined by 3.1 million barrels per day in the first half of 2009 compared to the first quarter of 2008, with OECD countries accounting for 2.8 million barrels of that decline and non-OECD countries only 300,000 barrels.
Natural gas consumption EIA projected that U.S. natural gas consumption will be down 2.6 percent in 2009 and grow by 0.5 percent next year.
There was a 3.8 percent decline in daily average natural gas consumption in the first half of the year compared to the first half of last year, “driven principally by a drop in industrial activity.”
Natural gas prices are so low that gas now competes with coal for a share of baseload generation in the electric power sector, the agency said.
Total marketed U.S. natural gas production is expected to be flat in 2009 and decrease by 2.8 percent next year, “conditioned on the current low price environment that has brought about a significant pullback in drilling activities,” EIA said. The agency cited Baker Hughes numbers showing total working natural gas rigs down 58 percent since September.
March through May numbers show a decline of some 0.3 billion cubic feet per day, but EIA said production is expected to decrease at a faster rate through the rest of the year.
LNG imports up Liquefied natural gas imports into the U.S. are expected to increase to about 500 bcf this year, up from 352 bcf last year; the 2010 estimate is for imports of some 740 bcf, the EIA said.
The agency said U.S. import growth this year has been constrained by increased demand in Europe and “delays and maintenance to new and existing LNG liquefaction capacity.”
Recent data suggest that what limited gas storage Europe has is nearing capacity and as a result LNG shipments may be redirected to the U.S. “in the coming months as prices in the European market become less attractive to LNG suppliers.”
EIA said a similar thing may occur in Canada, “with natural gas pipeline imports increasing in the months ahead as Canadian storage facilities are topped off. An increase in U.S. natural gas imports would likely be balanced by larger-than-expected declines in domestic natural gas production.”
Current natural gas storage, 3,089 bcf on July 31, is 496 bcf above the five-year average and 580 bcf above the corresponding week in 2008. EIA said it expects natural gas stocks to reach 3,800 bcf at the end of October, 235 bcf above the record of 3,565 bcf set in October 2007.
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