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EIA expects oil prices to remain above $20 a barrel OPEC compliance expected to remain relatively strong through winter; agency expects more production after March Petroleum News Alaska
The U.S. Department of Energy’s Energy Information Administration said Dec. 2 that it expects world oil prices for the remainder of 1999 and all of 2000 to remain above $20 a barrel.
The agency said it believes that prices will rise from average November levels (an estimated $23.50 per barrel for the price paid by U.S. refiners for imported crude) by about $1 per barrel by December, due to increased demand in the winter and Y2K precautionary building of end-user inventories.
The world oil price is then expected to dip slightly to an average of $24 per barrel in January 2000 as the peak of the winter stock build passes before gradually declining to $20.50 per barrel by December 2000.
This forecast assumes that OPEC compliance remains relatively strong through the winter, but that OPEC production increases after March 2000, either by an increase in quotas or a decrease in compliance to current quotas. Even with increased oil supplies from OPEC and non-OPEC countries this production profile should draw down world oil stocks to well below normal levels by the end of the winter period. Since world oil demand exceeded world oil supply by more than 1 million barrels per day, even a large increase in supply may not be enough to have world oil supply greater than world oil demand in 2000.
However, increases in OPEC crude oil production after March 2000 are not expected to be large enough to allow the world oil price to slip below $20 per barrel (equivalent to a West Texas Intermediate crude oil price of about $22 per barrel).
OPEC compliance forecast EIA is currently forecasting OPEC compliance with agreed upon production cuts beginning this April to remain relatively strong through the end of the current agreement, which expires at the end of March 2000.
Although OPEC compliance is expected to decline during the winter period, overall OPEC compliance is expected to remain relatively strong compared to previous agreements. OPEC has tentatively scheduled another ministerial meeting for March 27, 2000, but it is unclear what OPEC will decide to do in relation to their quotas at that meeting. Given our world demand and non-OPEC production forecasts, EIA is assuming that OPEC production will continue to increase in 2000, whether from an increased quota or a decrease in compliance.
Non-OPEC production down Non-OPEC oil production is expected to be about 200,000 barrels per day less in 1999 than it was in 1998, mainly as a result of reduced development expenditures due to very low oil prices in 1998 and early 1999. However, EIA is expecting non-OPEC production to increase by about 800,000 barrels per day in 2000 as higher oil prices counteract some of the same forces that caused non-OPEC oil production to decline in 1999.
A significant amount of the increase in non-OPEC production is expected to come from the North Sea. After remaining relatively flat between 1996 and 1999, North Sea oil production is expected to increase by about 400,000 barrels per day in 2000, with the increase split evenly between Norway and the United Kingdom. Another major increase is expected to come from Australia. Australia is expected to increase by about 100,000 barrels per day in 2000, as production continues to increase from low levels at the end of 1998, which were caused by an accident in the Gippsland Basin.
Demand expected to grow EIA estimates that world oil demand will grow by about 1 million barrels per day in 1999, and by an additional 1.4 million barrels per day (1.8 percent growth) in 2000. The 2000 world oil demand estimate is unchanged from last month’s forecast, and assumes that overall Asian demand continues the slow but steady recovery into next year. After growing by about 900,000 barrels per day each year between 1991 and 1996, oil demand in Asia (Japan, China, and other non-OECD Asia) grew by less than half of that in 1997 and actually declined by over 200,000 barrels per day in 1998. However, in 1999, oil demand in this region is once again expected to grow (by nearly 400,000 barrels per day). By 2000, Asian oil demand growth is expected to grow by over 600,000 barrels per day, or nearly 70 percent of the 1991-1996 average annual growth.
Editor’s Note: EIA reports can be found on the Internet at: http://www.eia.doe.gov
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