West Texas Intermediate crude oil is expected to average $66 per barrel this year and $65 per barrel in 2007, the U.S. Department of Energy’s Energy Information Administration said in its Dec. 12 short-term energy outlook.
The agency said production cuts by the Organization of Petroleum Exporting Countries beginning in November and the recent erosion in surplus U.S. product inventories, combined with the expected increase in petroleum demand during the winter heating season, drove spot WTI prices above $60 in the last week of November. OPEC is expected to reduce production by some 800,000 barrels per day in November and December.
Natural gas spot prices are expected to average $8.58 per thousand cubic feet in the first quarter of 2007 due to projected colder weather in the first quarter of 2007 compared to 2006, an increase of about 65 cents per mcf over the first quarter of 2006. Henry Hub natural gas spot prices are expected to average $7.06 per mcf in 2006 and $7.87 per mcf in 2007.
OPEC announced cut 1.2 million bpd
OPEC announced a 1.2 million bpd cut effective Nov. 1, responding to rising oil inventories and declining world oil prices, and EIA said “evidence to date indicates that much, but not the entire amount, of this cut was made as promised.”
The agency said it left unchanged earlier projections that OPEC production would be lowered by almost 800,000 bpd in November and December, but raised production estimates to show that Saudi Arabia began making its cuts before the November target.
The reduction in OPEC production and growing demand during the winter heating season is expected to increase the average monthly price of WTI crude from $59 per barrel in November to the mid-$60s over the winter.
EIA is still projecting that world oil demand will grow by 1.5 million bpd in 2007, with U.S. petroleum consumption expected to rise by 300,000 bpd in 2007, following relatively flat consumption in 2006. The United States and China are projected to account for over half of the growth in world oil consumption in 2007.
Net growth in non-OPEC projection is expected to grow by some 500,000 bpd in 2006. EIA said that while production will be limited at first, Russia’s Sakhalin I project and the United Kingdom’s Buzzard field should begin adding new supply by the end of December.
In 2007, non-OPEC production is expected to rise by 1 million bpd as new projects in the Caspian region, Africa and Brazil add more than 800,000 bpd.
But with projected demand growth in 2007 exceeding expected non-OPEC production growth, there will be an increased demand for OPEC oil. World surplus crude oil production capacity should increase only slightly in 2007. “However, OPEC’s production cuts mean that, for the first time in months, surplus production capacity is no longer restricted to just Saudi Arabia,” the agency said.
U.S. oil production is expected to average 5.2 million bpd, “virtually unchanged from 2005 when hurricane activity affected Gulf of Mexico output in the second half of the year.”
Total U.S. output is expected to increase by 4.1 percent in 2007 with the startup of new deepwater production and recovery of Alaska output brought about by the repair of North Slope pipelines that limited production beginning in August.
Warmer November weather helped gas prices
The Henry Hub spot price averaged $7.63 per mcf in November due to warmer-than-normal weather, with heating degree-days for the month down 36 percent from normal in the East North Central region and down 27 percent in New England and the Mid-Atlantic.
Levels of natural gas in storage are high and the forecast is for slightly warmer than normal weather, the EIA said, and natural gas spot prices are expected to stay below $9 per mcf on average during the heating season.
A January peak of roughly $8.71 per mcf is projected, and the Henry Hub price is expected to average $7.06 per mcf in 2006 and $7.87 per mcf in 2007.
Because of warmer-than-normal weather in early 2006, total natural gas consumption for the year is projected to decline by 0.5 percent. Normal weather is expected in 2007, and a growth of 1.5 percent in natural gas use.
Domestic dry natural gas production is expected to increase by about 2.3 percent in 2006, but drop slightly by 0.7 percent in 2007, the EIA said, with net imports expected to remain basically unchanged in 2007.
A sizeable increase in liquefied natural gas imports in 2007 will offset a decline in pipeline shipments from Canada. “Despite strong projections of LNG supply in 2007, imports will continue to be affected by price competition in the global market,” EIA said.
Working gas in storage as of Dec. 1 was 3.4 trillion cubic feet, 232 billion cubic feet above the year-ago level and 282 bcf above the five-year average for the date.
