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High oil prices continue, but EIA predicts small drop before year-end Heating demand so far this season below normal, but NOAA predicting colder winter than last two years in U.S. heating demand areas Petroleum News Alaska
Oil prices are defying gravity, remaining well above $30 per barrel ($33.10 for WTI in October and similar levels for the first week of November), the U.S. Department of Energy's Energy Information Administration said Nov. 8 in its November short-term energy outlook.
High oil prices persist despite estimates of significant world production above demand requirements and despite another round of announced OPEC increases, the agency said.
Israeli/Palestinian tensions notwithstanding, “we do not see how prices can remain detached from the corrective forces of the world market if production is as high as is implied by OPEC statements and by typical estimates of non-OPEC output currently in circulation,” the agency said.
Sooner or later (probably before the end of winter) the EIA said it expects crude oil prices to fall (perhaps by $4 to $5 per barrel from current levels) under the weight of excess supply if the world oil market balance it is currently projecting is close to being correct.
If high prices continue and there is lack of hard evidence that world oil inventories are increasing significantly, the EIA said it would take those as signs that market rebalancing will take longer than anticipated. Heating demand below expectations There is good news, the EIA said. With the first month of the U.S. heating season out of the way, heating demand so far has been below expectations. But despite strong efforts by U.S. refiners to increase heating oil output this season, heating oil stocks remain well below normal. The newly established Northeast Heating Oil Reserve is full (2 million barrels), but the EIA said those volumes are relatively small “and are assumed to be unavailable under any but the most extreme circumstances.”Drilling activity up “North American gas drilling activity continues at a torrid pace in terms of active rigs drilling and expected well completions for 2000 and 2001,” the EIA said.
The overall gas supply situation is improving somewhat and the agency has increased its estimates for production growth in 2001 to about 350 billion cubic feet (a 1.9 percent increase) from 240 billion cubic feet (a 1.3 percent increase) in previous outlooks.
Near-term natural gas prices have fallen from recent highs seen in October, and the EIA said it expects spot and futures prices to remain sensitive to indicators of demand or supply changes, such as weather or storage. The spot and average wellhead prices, while still relatively high, should ease further away from the $5 per thousand cubic feet level through 2001 than previously projected, the EIA said. Cooler temperatures forecast The EIA said the National Oceanographic and Atmospheric Administration's winter weather outlook still calls for significantly lower average temperatures this winter compared with the previous two winters in the heating demand areas of the country. The EIA said it has used weather-as-normal conditions in its forecasts, but notes that warmer-than-normal conditions have prevailed thus far in the early 2000-2001 heating season.
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