EIA short-term forecast sees oil price volatility; gas spot prices could top $6

Petroleum News Alaska

The U.S. Department of Energy's Energy Information Administration said Jan. 8 in its short-term forecast that the there could be "substantial price volatility" in the oil market over the next few months and possible price spikes.

The agency said major factors are loss of Venezuelan oil exports, increased tensions in the Middle East and low inventories.

The average price for West Texas Intermediate, $27.27 per barrel Dec. 2, had risen to $33.22 per barrel Jan. 3.

"If the Venezuelan strike is prolonged and tensions in the Middle East continue, then the chance of a price spike is high," the EIA said, with the magnitude of that price spike depending on how long a supply loss lasts and how willing and able other suppliers are to increase their own production.

The agency said its base case assumption assumes Venezuelan problems are resolved by the end of January, that Iraq continues to export at recent levels and that other producers step up production to keep markets stable.

In the U.S. natural gas market, the EIA said, Henry Hub spot price in the second week of December was more than $5 per million British thermal units. "Spot prices have since stayed above this threshold on most days, as abnormally cold weather during the fourth quarter of 2002 reduced underground storage levels at a much faster rate than was previously anticipated," the agency said.

Because of the reduced storage cushion and currently high world oil prices, "natural gas prices will likely remain relatively high through January or February, unless the rest of the winter turns out to be unusually mild."

If, however, the rest of the winter is colder than normal, the EIA said "spot natural gas prices could easily reach $6.00 per million Btu for a short period."