EIA: crude oil price up more than projected

WTI expected to average $59 per barrel in third quarter, $6 higher than agency forecast in June, and up $15 from last year

Petroleum News

The price of West Texas Intermediate crude oil averaged more than $56 a barrel in June and the U.S. Department of Energy’s Energy Information Administration said July 12 that it is now projecting WTI to average $59 per barrel for the third quarter of the year. EIA said this is about $6 a barrel higher than it projected in June.

“Monthly average WTI prices are projected to remain above $55 per barrel for the rest of 2005 and 2006,” the agency said in its July 12 short-term forecast. Prices are sensitive “to any incremental oil market tightness” and “real or perceived” imbalances in light oil markets could cause the average WTI price to top $60 a barrel, the agency said.

EIA said it expects worldwide petroleum demand growth to “remain robust” this year and next, “although not as strong as in 2004,” with worldwide demand projected to grow at 2.1 million barrels per day in 2005 and 2006, “a 2.5 percent annual average growth rate compared with 3.4 percent growth in 2004.”

Demand growth in China, which was 1 million bpd in 2004, is expected to be 600,000 bpd in 2005 and 2006.

Worldwide, “only Saudi Arabia has any spare crude oil production capacity available, and the Saudis would need to steeply discount their heavy oil in order to market it effectively,” the agency said.

Although Saudi Arabia and other Persian Gulf nations are projecting capacity additions in 2005-06, if demand grows more rapidly than expected over the next two years, “world spare capacity could decline from 2004 levels.”

EIA said refining and shipping are expected to remain tight and “geo-political risks, such as the continued insurgency in Iraq and possible problems in Nigeria and Venezuela, are expected to keep the level of uncertainty in world oil markets high.”

Weather is also a factor in the U.S. oil market because of the hurricane season just beginning, with the potential to affect Gulf of Mexico oil and natural gas production and refinery operations. “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 agency said.

The Henry Hub natural gas spot price averaged $7.36 per thousand cubic feet in April, fell to $6.66 per mcf in May and bounced back to $7.40 in June. EIA said the natural gas market is likely to stay tight over the next few months because of summer cooling demands.

“Prices are then projected to rise even further as the winter heating season boosts natural gas demand,” the agency said, and forecast monthly spot prices near $7.90 per mcf by the end of the year.

The Henry Hub average spot price is expected to be $7.21 per mcf in 2005 and $7.41 per mcf in 2006 with higher than average natural gas storage offset by high world oil prices, continued strength in the economy, expected below-normal Pacific Northwest hydroelectric resources through mid-summer and limited prospects for growth in domestic natural gas supplies.

Working gas storage at July 1 was 8 percent higher than a year ago and 12 percent above the five-year average.