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Oil markets expected to remain tight EIA says while current economic slowdown contributes to decline in demand, sluggish production expected to keep markets tight Petroleum News
The current slowdown in economic growth is contributing to the decline in oil demand and to a sharp decline in oil prices, but sluggish production growth is expected to keep oil markets relatively tight, the U.S. Department of Energy’s Energy Information Administration said in its short-term energy report released Oct. 7.
The agency said strong global demand and low surplus production capacity contributed to the run up to record crude oil prices in July. While the current slowdown in economic growth is contributing to recent declines in oil demand and to the sharp decline in prices since July, absent a major worldwide economic downturn, EIA said it expects West Texas Intermediate crude oil prices to average $112 per barrel both this year and next.
A winter colder than last year is expected to contribute to high fuel use in many areas, with the National Oceanic Atmospheric Administration’s most recent projection for the Lower 48 of a winter 2.4 percent colder than last winter — although 1.7 percent warmer than the 1971 to 2000 30-year average. EIA said average household expenditures for all space-heating fuels are projected to average $1,137 for Oct. 1 through March 31, a 15 percent increase from last winter, with the largest increases for households using heating oil and natural gas.
Saudi production up EIA said Saudi Arabia had higher crude oil production this summer which “combined with the demand response to extremely high prices and recent credit market problems that point to a lower trajectory for the world economy and oil consumption growth are currently reinforcing the sentiment of a loosening in the global oil balance.” Because of those factors, recent supply disruptions in the Gulf of Mexico have not pushed up oil prices as much as if they had occurred earlier in the year.
But, the agency said, unless the global economy is weaker than expected, Organization of Petroleum Exporting Countries will not be able to meet the crude oil demand over the next six months. That combined with relatively low commercial oil inventories in Organization for Economic Cooperation and Development countries, “suggest some upward pressure on prices.”
EIA said the determining factor in price pressures may be whether non-OPEC oil production increases as expected next year.
Global oil consumption is expected to increase by some 300,000 barrels per day in 2008 and by almost 800,000 bpd in 2009. EIA said 2008 growth is nearly 350,000 bpd lower than in its September projection, “reflecting the deteriorating global economic outlook.”
Natural gas use up Natural gas consumption is expected to increase by 2.4 percent in 2008 and by 1.9 percent in 2009, EIA said, with U.S. marketed natural gas production expected to be up by 6.7 percent this year and by 4.2 percent next year. Lower 48 non-Gulf of Mexico production continues to lead domestic production with a growth of 9.7 percent expected this year.
U.S. imports of liquefied natural gas are below year-ago levels with third-quarter imported cargoes less than half what they were last year. “Demand growth in Europe and Asia combined with limited global supply increases to date continue to weigh on the market,” EIA said. LNG imports to the U.S. are not expected to increase in the remainder of the year. 2009 import growth “remains vulnerable to additional delays in new capacity and unexpected maintenance on existing capacity.”
LNG imports for 2008 are expected to total some 350 billion cubic feet; 450 bcf is expected in 2009 as more global LNG capacity comes online.
The September Henry Hub spot price averaged $7.88 per thousand cubic feet, down 62 cents from the average in August. EIA said the recent decline in prices was the result of demand loss associated with recent hurricanes in the Gulf of Mexico, moderate temperatures, lower oil prices and uncertainties over future economic growth.
Consumer prices for natural gas this winter, however, are expected to be up some 18 percent compared to last winter, “the result of the particularly high spot prices that were recorded earlier this year as a portion of the inventories for the upcoming heating season were being built.”
EIA said beyond this winter the continued growth in on-shore U.S. production is expected to bring the natural gas price down, with the price expected to average $9.67 per thousand cubic feet this year and $8.17 in 2009, compared to $7.17 in 2007.
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