|
EIA expects narrowed WTI price discount Transportation bottleneck keeping crude from Canada, ND, in midcontinent, expected to ease with more rail and truck capacity Kristen Nelson Petroleum News
The U.S. Energy Information Administration said Nov. 8 that it is forecasting a narrowing of the price discount for West Texas Intermediate crude oil to $8 a barrel from the current $11 below the U.S. refiner acquisition cost of crude.
WTI has traded at a premium over the average U.S. refiner acquisition cost of crude oil for most of the last 30 years.
What changed? EIA said crude oil supply, particularly from Canada and North Dakota, grew in the midcontinent region where WTI is traded, a supply growth not matched by increases in transportation out of the Midwest to refining centers such as the Gulf Coast.
“This transportation bottleneck contributes to the large price discount for WTI relative to other U.S. and world crude oils,” the agency said.
The price discount reached a record in the third quarter of this year, but EIA said the discount “is now expected to diminish modestly as the flow of crude oil out of the midcontinent region increases” due to added rail and truck capacity from the region.
EIA said the U.S. average refiner acquisition cost of crude oil is expected to remain relatively flat, averaging about $100 per barrel in both 2011 and 2012. Upward price pressure Crude oil prices continue to face upward price pressure “because of supply uncertainty resulting from ongoing unrest in the oil-producing regions of the Middle East and North Africa,” EIA said.
But if Libya is able to ramp up oil production and exports sooner than expected, that would exert downward price pressure.
EIA said there are also downside demand risks caused by persistent fears “about weakening global economic growth, contagion effects of the debt crisis in the European Union, and other fiscal issues facing national governments.”
The engine for global oil consumption growth is emerging markets outside the Organization for Economic Cooperation and Development. To meet that growth in demand, more production from members of the Organization of the Petroleum Exporting Countries, combined with inventory withdrawals, will be needed to supplement non-OPEC supply growth for the oil market to balance at the prices it is projecting, EIA said.
World crude oil and liquid fuels consumption is expected to grow from its 2010 record-high level of 87.1 million barrels per day to 88.2 million bpd in 2011 and 89.6 million bpd in 2012.
“China and other emerging economies account for all of the projected crude oil and liquid fuels consumption growth through 2012,” EIA said, with consumption in Organization for Economic Cooperation and Development expected to decline by 400,000 bpd in 2011 and to remain relatively flat in 2012.
West Texas Intermediate crude oil spot prices fell from an average of $110 per barrel in April to $86 per barrel in August, EIA said, and remained near that level through October.
EIA has revised its projected oil price paths slightly upward from October, and expects that the refiner average crude oil acquisition cost will average $100 per barrel this year and next, slightly above its projected $99 per barrel for this year and $98 for next year in October.
The Henry Hub spot price for natural gas averaged $3.56 per million Btu in October, a drop of 34 cents from the September average and 49 cents lower than the August average.
EIA said it is lowering its 2011 forecast by 6 cents to $4.09 per million Btu and lowering its 2012 forecast by 19 cents to $4.13 per million Btu, compared with its October forecasts.
The agency expects total natural gas consumption will grow by 1.7 percent to 67.1 billion cubic feet per day in 2011.
U.S. marketed natural gas production is expected to average 65.6 bcf per day this year, a 6.1 percent increase over 2010. EIA said the growth all comes from higher onshore natural gas production in the Lower 48, which more than offset a year-over-year decline of 1 bcf per day in federal Gulf of Mexico production.
2012 total marketed production is expected to grow, but at a slower pace, an estimated 2 percent, to an average of 66.9 bcf per day.
“Drilling activity has been resilient despite lower natural gas spot and futures prices,” EIA said, noting that Baker Hughes reported an October 28 rig count of 934 active rigs targeting natural gas; up from the previous month and up from the year’s low of 866 rigs on May 20.
EIA said if drilling continues to increase, production could grow more than expected next year.
| 