EIA: Crude oil demand expected to increase

Henry Hub natural gas spot prices average $4.25 per million Btu; agency expects natural gas market to begin tightening in 2012

Kristen Nelson

Petroleum News

The U.S. Energy Information Administration said June 7 that it expects world oil markets to tighten through next year based on projected world oil demand growth and slowing production from non-OPEC countries.

On the natural gas side, EIA said U.S. natural gas working inventories stood at 2.2 trillion cubic feet at the end of May, down about 10 percent from the same period last year. The agency expects working gas inventories to build during the summer and approach record-high levels in the second half of the year.

The Henry Hub natural gas spot price is projected to average $4.25 per million Btu this year, EIA said, down 13 cents from the 2010 average. The agency said it expects the natural gas market to tighten next year, resulting in an average Henry Hub price of $4.58 per million Btu in 2012.

World oil consumption is expected to grow by 1.7 million barrels per day this year, driven by higher consumption for electrical generation in China, Japan and the Middle East. Next year’s growth is projected at 1.6 million bpd. Supply from countries outside the Organization of the Petroleum Exporting Countries is projected to increase an average of 600,000 bpd this year and 500,000 bpd in 2012.

EIA said it expects the market to rely on a drawdown in inventories and increases in production from both OPEC and non-OPEC countries to meet the projected demand growth.

World liquid fuels consumption — which hit a record 86.7 million bpd in 2010 — is expected to grow by 1.7 million bpd in 2011 and by an additional 1.6 million bpd in 2012, resulting in total consumption of 90 million bpd in 2012.

The agency said countries outside the Organization for Economic Cooperation and Development will account for most of the growth in liquid fuels consumption in the next two years, with the largest increases coming from China, Brazil and the Middle East.

Non-OPEC crude oil and liquid fuels production is projected to increase by 590,000 bpd in 2011 and by 490,000 bpd in 2012, with the greatest increases from Brazil, Canada, China, Colombia and countries that were formerly part of the Soviet Union.

OPEC crude oil production is forecast to decline by 370,000 bpd this year and increase by 660,000 bpd next year, EIA said.

Estimated OPEC crude oil production in the first quarter averaged 30 million bpd. OPEC’s surplus capacity is projected to fall from 4 million bpd at the end of 2010 to 3.6 million bpd at the end of this year, with a further decline to 3.1 million bpd at the end of 2012.

OECD inventories are expected to decline this year, “following the steep drop in floating storage that has already occurred.”

West Texas Intermediate crude oil spot prices averaged $103 per barrel in March, $110 per barrel in April and $101 in May.

EIA said it expects that WTI spot prices will average $102 this year, down from $79 per barrel last year, and will rise to $107 per barrel in 2012.

WTI is price discounted compared with similar quality world crude oils such as Brent because of growing volumes of Canadian crude oil coming into the U.S. which contributed to record-high storage levels at Cushing, Okla. “A discount for WTI is expected to persist until transportation bottlenecks impacting the movement of mid-continent crude oil to the Gulf coast are relieved,” EIA said.

On the natural gas side, the agency said it expects the Henry Hub spot price, which averaged $4.31 per million Btu in May, will average $4.25 this year, but growth is natural gas production is expected to slow, contributing to a tightening domestic market in 2012, and an average price of $4.58 for 2012.