West Texas Intermediate crude oil is expected to average about $70 a barrel this winter, the U.S. Department of Energy’s Energy Information Administration said Oct. 6 in its short-term energy and winter fuels outlook.
EIA expects average WTI prices to rise to about $75 a barrel by December 2010 as U.S. and world economic conditions improve, based on an assumption of 1.8 percent growth in U.S. gross domestic production and a world oil-consumption-weighted GDP growth of 2.6 percent.
The agency has begun tracking futures prices “and the market’s assessment of the range in which those futures might trade” and said its monthly outlook will report confidence levels around New York Mercantile Exchange crude oil and natural gas futures prices using a measure of risk derived from Nymex options markets known as “implied volatility.”
EIA expects natural gas inventories to set a new record high at the end of the year’s injection season, Oct. 31, reaching more than 3.8 trillion cubic feet; the Henry Hub annual average spot price is expected to increase from $3.85 per thousand cubic feet in 2009 to $5.02 in 2010.
Implied volatility“Starting this month, EIA is including a quantitative measure of price uncertainty based on options market transactions in our monthly Short-Term Energy Outlook,” EIA Administrator Richard Newell said in an Oct. 6 statement. “The new measure characterizes the degree of uncertainty in futures market prices, and provides perspective on the range of possible energy prices.”
Nymex futures market participants were pricing WTI delivered to Cushing, Okla., in December at an average of $68 per barrel during the five days ending Oct. 1, EIA said. The 95 percent confidence level for those December futures contracts “ranges between $48 per barrel and $96 per barrel, a $48 per barrel difference,” with about a 5 percent chance prices will fall outside of that 95 percent confidence interval.
In the same period, natural gas futures on Nymex were trading at $5.64 per million Btu for gas delivered to Henry Hub, La., during December. The 95 percent confidence interval around this price ranges between $3.70 and $8.60, a difference of $4.90 per million Btu.
Oil demands revised upwardEIA said sustained economic growth in China and signs of a turnaround in other Asian countries continue to fuel expectations of a world oil consumption recovery; the agency has revised its oil consumption expectations upward by 200,000 barrels per day for the remainder of 2009 and 2010.
But the WTI oil price expectation has not been revised because there are ample oil supplies on the market, with inventories high and Organization of the Petroleum Exporting Countries production expected to increase.
“EIA’s current macroeconomic outlook assumes that the world economy begins to recover at the end of 2009, led by non-OECD Asia,” the agency said.
U.S. natural gas consumption downU.S. consumption of natural gas is projected to decline by 2 percent in 2009 and by 0.2 percent in 2010, as weak economic conditions continue to hamper the industrial sector, where natural gas consumption was down 12.4 percent through July compared to the same period in 2008.
“With lower consumption in the residential and commercial sectors as well, natural gas use in the electric power sector continues to serve as the only demand outlet for increased natural gas supplies,” EIA said, with electric-power-sector natural gas consumption up by 0.4 percent in 2009 through July, compared to the same period last year, despite a 5.3 percent decline in total electricity generation.
EIA said it expects natural gas consumption growth in the commercial and industrial sectors in 2010 to be offset by a decline in the electric power sector, with fewer cooling degree-days expected next year, combining with higher natural gas prices and the startup of new coal-fired generating capacity expected to contribute to a reduction in natural-gas-fired electric generation next year.
U.S. gas production upU.S. marketed natural gas production is expected to increase by 1.5 percent this year and decline by 3.8 percent next year, EIA said. Production was up 2.9 percent through July compared to the same period last year, despite a decline in the working rig count of more than 40 percent since January.
The agency expects that, while production has remained stronger than expected this year, the pullback in natural gas drilling will lead to a 3.6 percent reduction in Lower 48 production from the first half to the second half of the year.
U.S. liquefied natural gas imports are expected to increase to about 471 billion cubic feet in 2009, from 352 bcf last year, and rise to some 660 bcf next year.
The projected working gas inventory Oct. 31, the end of the injection season, is some 285 bcf above the previous record of 3.565 tcf reported for the end of October 2007.