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EIA expects crude oil price to stabilize near current levels until spring Agency says natural gas prices will probably stay in $2-$3 Mcf range over same period, given normal weather, weak condition of U.S. industrial manufacturing sector Petroleum News • Alaska
The precarious worldwide economic situation has generally dampened expectations for strong energy demand growth in the near future, the U.S. Department of Energy's Energy Information Administration said in its short-term energy outlook Nov. 6.
Energy prices, with the exception of natural gas, have drifted lower over the last month and the EIA said it expects monthly average crude oil prices to stabilize near current levels until next spring. If U.S. and world demand growth recover, there could be some upward drift in the second half of 2002.
The West Texas Intermediate crude oil spot price averaged $22.60 per barrel in October, $4 below the September average and nearly $11 below the estimated average for October 2000. The EIA said the downward momentum of oil prices is likely to be arrested by efforts of the Organization of Petroleum Exporting Countries to restrain output.
Rationale for prices above $3 Mcf lacking U.S. natural gas spot prices, which fell to lows near $1.90 per thousand cubic feet during the first week of October, rallied to above $3 an Mcf in late October and early November.
The EIA said bullish sentiment among gas market participants had apparently been caused by relatively low storage injections in recent weeks, steady reductions in drilling activity since July and intimations about below-normal temperatures this fall.
“It is our view that, assuming normal weather and taking into account the very weak condition of the U.S. industrial manufacturing sector, fundamental rationale for prices above $3 per Mcf is lacking,” the EIA said.
The agency said it believers some correction is likely, and that over the next five months prices will remain in the $2-$3 an Mcf range.
If the steady reduction in drilling continues, the agency said, that is likely to contribute to “substantial strengthening of natural gas prices going into 2003, especially if the U.S. economy stages a solid economic recovery beginning by mid 2002.”
Non-OPEC countries unlikely to make cuts World oil prices are expected to firm in the fourth quarter with the onset of seasonal increases in world oil demand and expected OPEC production quota reduction.
The EIA said it estimates that OPEC overproduced by 900,00 barrels per day in October, and the current outlook “assumes that OPEC will agree to some sort of production cut when they meet this month to reassure markets and reduce supply.”
OPEC typically achieves 60-70 percent of agreed quota reductions, EIA said, and it assumes a real production cut of more than 600,000 barrels per day, based upon a target of 1 million bpd.
The EIA said it is assuming there will be some public statements of support from non-OPEC producers, but no substantial cutbacks from those countries.
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