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EIA: oil markets expected to tighten IEA release of 60 million barrels a factor, but so are changing expectations, supply disruption uncertainty, OPEC spare capacity Kristen Nelson Petroleum News
World crude oil prices, which fell after the International Energy Agency said June 23 that its member countries would release up to 60 million barrels of oil in strategic storage, subsequently rose back to pre-announcement levels, the U.S Energy Information Administration said July 12 in its short-term energy outlook.
Oil price changes since the June announcement are difficult to attribute to the announcement because changing expectations of world economic and crude oil consumption growth, uncertainty over oil supply disruptions, estimates of OPEC spare production capacity and other physical and financial factors continually affect oil prices, EIA said.
While the IEA release will provide some additional supply, EIA said it expects oil markets to tighten through 2012, and with projected world demand growth, the projected U.S. average refiner acquisition cost of crude is expected to rise from $102 per barrel this year to $108 per barrel in 2012.
On the natural gas side, EIA projects a Henry Hub spot price averaging $4.27 per million British thermal units this year, 12 cents lower than the 2010 average. But the agency expects the natural gas market to begin tightening in 2012, with the Henry Hub spot price increasing to an average of $4.54 per million Btu.
Consumption expected to grow Total world oil consumption is projected to grow by 1.4 million barrels per day this year and by 1.6 million bpd in 2012, EIA said, with the market relying on both drawdown of inventories and production increases in both Organization of the Petroleum Exporting Countries and non-OPEC countries.
EIA projects that non-OPEC crude oil and liquid fuels production will increase by 540,000 bpd in 2011 and by 740,000 bpd in 2012, with the greatest increases coming from Canada, China, the U.S., Brazil and Colombia.
EIA said it has lowered the decline in production expected from the North Sea and Europe compared to the June forecast, and said increased taxes on production, especially in the United Kingdom, are now expected to have less of an effect on total production.
OPEC production is forecast to decline by some 300,000 bpd this year, but to increase by some 560,000 bpd in 2012, with an assumption that about half of Libya’s pre-disruption production will resume by the end of 2012.
OPEC’s 12 members produced an estimated 29.2 million bpd of crude oil in the second quarter of the year and EIA said it expects that production to increase to an average of 29.6 million bpd in the third quarter.
EIA said it is projecting that OPEC surplus capacity will fall from 4 billion bpd at the end of 2010 to 3.5 million at the end of this year, further declining to 3.1 million bpd by the end of 2012.
WTI spot prices down West Texas Intermediate crude oil spot prices fell from an average of $110 per barrel in April to $96 per barrel in June.
EIA said it expects oil markets to tighten due to growing demand in emerging economies and slowing growth in non-OPEC supply.
WTI spot prices, which averaged $79 per barrel in 2010, are expected to average $98 per barrel this year and $103 per barrel next year, the agency said, while the U.S. composite refiner acquisition cost of crude oil is projected to average $102 and $108 per barrel in 2011 and 2012, respectively.
EIA said WTI has been discounted compared to similar-quality world crudes such as Brent due to high storage levels at Cushing, Okla., due to growing volumes of Canadian crude oil imported into the U.S.
“The price discount for WTI is expected to persist until transportation bottlenecks restricting the movement of mid-continent crude oil to the Gulf Coast are relieved,” EIA said.
The agency said the WTI discount accounts for the fact that U.S. refiner average acquisition cost, which was almost $2.70 a barrel below WTI in 2010, is about $4 per barrel above WTI in 2011 and projected to be $5 per barrel about WTI in 2012.
Domestic production U.S. crude oil production increased by 150,000 bpd last year to 5.5 million bpd and is projected to increase by a further 50,000 bpd both this year and next. Lower 48 production is expected to grow by 260,000 bpd this year and by 170,000 bpd in 2012, EIA said, “as a result of increased oil-directed drilling activity.”
U.S. marketed natural gas production is expected to average 65.4 billion cubic feet per day this year, up 3.6 bcf from 2010. Growth is expected to continue at a slower pace in 2010, increasing just 600 million cubic feet per day to average 66 bcf.
Growing domestic production has reduced reliance on natural gas imports and contributed to increased exports, with pipeline gross imports expected to fall by 3.9 percent to 8.7 bcf per day and 2011 and by 4 percent to 8.4 bcf in 2012. Pipeline gross exports to Mexico and Canada are expected to average 4.2 bcf per day this year and 4.3 bcf in 2012, compared to 3.1 bcf in 3010.
The Henry Hub spot price averaged $4.54 per million Btu in June, up 23 cents from May. EIA said it expects Henry Hub will average $4.26 in the second half of 2011. A $4.54 per million Btu average is projected for 2012, “as slowing growth in production contributes to tighter domestic natural gas markets.”
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