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EIA outlook expects $59 West Texas Intermediate average in 3rd quarter Agency: World oil market uncertainty high; natural gas prices to average $8.50 an mcf in 4th quarter Petroleum News
The U.S. Department of Energy’s Energy Information Administration said in its latest short-term energy outlook, released Aug. 9, that West Texas Intermediate crude oil averaged $59 per barrel in July and is expected to average more than $59 per barrel for the third quarter, approximately $15 per barrel above the year-ago level.
EIA said it expects the quarterly average for WTI to remain above $56 per barrel for the rest of 2005 and 2006, and said prices “remain sensitive to any incremental oil market tightness (such as unexpected losses in crude oil supply or surges in demand), which could cause light crude oil prices to average above $60 per barrel.”
The agency said robust worldwide petroleum demand growth is expected to average 1.8 million barrels per day between 2004 and 2006, a 2.1 percent annual increase, but down from 3.2 percent growth in 2004. The EIA said it was revising its previous 2.5 percent growth rate projection for 2005 and 2006, partly because Chinese oil demand is projected to grow at a slower rate, increasing just 500,000 barrels per day rather than the 1 million bpd growth rate seen in 2004.
Even at this somewhat lower level, non-OPEC production growth “is not expected to accommodate incremental worldwide demand growth,” increasing an annual average of 700,000 bpd in 2005 and 2006, below the annual average growth rate in 2002-04. And “worldwide spare production capacity is at its lowest level in three decades,” with only Saudi Arabia having spare production capacity, and that heavy oil would need to be “steeply” discounted to be marketed effectively.
Saudi Arabia and other Persian Gulf countries are projecting capacity additions this year and next, but EIA said “world spare capacity will remain low if world oil demand continues to grow as projected.”
And downstream sectors — refining and shipping — are expected to remain tight. Uncertainty expected to remain high All of these factors, coupled with geo-political risks, are expected to keep the level of uncertainty high in world oil markets, the agency said.
In the United States weather could play a role: EIA said the National Oceanic and Atmospheric Administration has increased the number of expected hurricanes in 2005 to between nine and 11 (including Dennis and Emily), with at least five to seven of those categorized as “major” hurricanes. The bulk of the storms are expected in August through October. NOAA said this may be one of the most active hurricane seasons on record for the Atlantic.
“With limited spare global crude oil production capacity and U.S. refinery utilization rates in the upper 90-percent range for much of the summer, oil prices are likely to react strongly to any disruption of or damage to petroleum infrastructure,” the EIA said, the length of price elevation from any one storm “determined by the severity of damage to petroleum facilities.” Henry Hub to average $7.63 per mcf The Henry Hub natural gas spot price is expected to average $7.63 per thousand cubic feet in 2005, the EIA said, and $7.34 per mcf in 2006. The July Henry Hub natural gas spot price average was $7.86 per mcf “as hot weather in the East and Southwest increased natural gas-fired electricity generation for cooling demand and crude oil prices increased.”
The agency said it expects the natural gas market to stay tight through the end of summer, “with prices projected to rise further as the winter heating season increases demand.” The fourth quarter Henry Hub spot price is expected to average $8.50 per mcf.
Natural gas storage remains above the five-year average, but high world oil prices, continued strength in the economy, expectations of below-normal Pacific Northwest hydroelectric resources, limited prospects for growth in domestic natural gas production and concerns about the affects of hurricanes are expected to keep prices high.
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