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EIA sees $30 floor for oil; natural gas to average $6.21 in 2004, $6.60 in 2005
Petroleum News
The Department of Energy’s Energy Information Administration said Aug. 10 that higher oil output from the Organization of Petroleum Exporting Countries during the second quarter “has so far failed to dampen upward price pressure,” with prices for West Texas Intermediate reaching into the $40s per barrel in early August.
The agency said rising consumption and little global surplus production capacity will continue to make near-term prices “volatile and sensitive to news relating to possible reductions in oil production.” There may be some price reduction “if increased production continues to flow and inventories build,” but “short of a serious slowdown in demand during the coming months,” the floor price for West Texas intermediate will probably remain “above $30 for the foreseeable future.”
Despite increases in production by key OPEC countries, spot prices for West Texas Intermediate were above the $40-per-barrel mark in early August, and the projected third-quarter price for West Texas Intermediate is now almost $41 per barrel, about $4 higher than the agency projected in July. The agency said that current world oil prices “may not entirely reflect pure economic fundamentals of the world oil supply market” because of a world-wide perception of a vulnerable supply situation caused by the Iraqi war and the Russian government’s treatment of Yukos. Those factors “may have added a premium to what otherwise might be a lower world crude oil price.”
OPEC crude oil production was 29.8 million barrels per day in July, 0.5 million bpd higher than June, and about 0.5 million bpd below total OPEC capacity. Natural gas prices down on normal storage U.S. pump prices for gasoline since the third week of June have ranged between the high $1.80s and low $1.90s per gallon, and on Aug. 9, the agency said, stood at $1.88 per gallon, about 18 cents per gallon below the historical week high of $2.06 for regular, reached in late May. On the natural gas side, prices were down in early August as storage levels remained normal and demand levels manageable. “However, with the economy continuing to expand and supply growth sluggish at best, prices at the Henry Hub (which averaged about $5.83 per mcf during the first week of August) are expected to rise above $6 per thousand cubic feet by fall,” the agency said.
Coal use for power generation was stronger than estimated during the spring, reducing somewhat the need for natural gas for power, and the 2004 demand growth for natural gas is now estimated to be about 0.4 percent, with 2005 demand increase estimated at 0.7 percent.
“Henry Hub prices averaged $5.80 per thousand cubic feet in 2003 and are expected to average $6.21 in 2004 and $6.60 in 2005,” the agency said.
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