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EIA predicts world oil prices to remain high for most of 2000 Assumptions behind forecast include OPEC 10 increase of 1 million barrels a day production in second quarter, 74 percent organization compliance Petroleum News Alaska
World oil price should remain high for most of the year as inventories are expected to remain low, even with an assumed increase in OPEC production of 1 million barrels per day beginning in April, the U.S. Department of Energy’s Energy Information Administration said March 6.
$22.50 oil by the fourth quarter 2001
The EIA said that the average cost per barrel of crude oil imported into the United States and delivered to U.S. refiners (the benchmark price which the agency used in making its forecast) is expected to increase from $26.65 a barrel in the first quarter of 2000 to $27.65 a barrel in the second quarter. After that, the agency said, the price is expected to fall off gradually throughout the rest of 2000 and 2001 to between $22.25 and $22.50 a barrel by the fourth quarter 2001.
West Texas Intermediate crude is generally about $2 higher than the benchmark price; Brent crude is generally about 50 cents to $1 per barrel higher.
EIA said the normal uncertainty range around the forecast is that the world oil price could be between $22 and $28 per barrel by the end of 2000 and between $19 and $26 per barrel by the end of 2001.
OPEC production increase crucial factor The EIA said its forecast assumes an increase in OPEC 10 (Organization of Petroleum Exporting Countries excluding Iraq) crude oil production of 1 million barrels per day in the second quarter; another 100,000 barrel per day increase in the third quarter; and a 400,000 barrel per day increase in the fourth quarter, with continued increases throughout 2001.
“If the OPEC 10 countries were to agree to a 1.2 million barrel per day increase in their quotas,” the agency said, “an actual production increase of 1 million barrels per day, as assumed in our forecast, would put OPEC 10 compliance with pledged production cuts at 74 percent in the second quarter.”
That, the agency said, is about the level of compliance seen over the past 12 months, and would mean prices would remain about $26 per barrel benchmark ($28 per barrel for WTI and about $27 per barrel for Brent) throughout spring and summer.
The agency also assumes crude oil production from Iraq will average about 2.3 million barrels per day in the first quarter of 2000 and increase throughout the year and even further in 2001.
Fourth quarter shows high non-OPEC production The EIA said that recently released data for the fourth quarter 1999 shows non-OPEC production 280,000 barrels per day higher in the quarter than estimated, including production from some countries, including Mexico and Norway, which had agreed, along with OPEC, to cut production.
OPEC’s share of world production declined by more than 1 percent from fourth quarter 1998 to fourth quarter 1999.
Taken together, EIA said, “this indicates that non-OPEC production may be increasing faster as a result of higher oil prices than some analysts may have predicted.”
Non-OPEC production declined in 1999, the EIA said, but is expected to increase by 900,000 barrels a day in 2000 and by another 1 million barrels a day in 2001, with most of the increases coming from the North Sea, Mexico, South America and Africa.
Demand growth at about 1.2 million barrels a day The agency’s March forecast assumes a growth in world oil demand in 2000 of only 1.2 million barrels per day (about 1.6 percent). In 1999, EIA said, world oil demand grew by only 1.1 million barrels per day (1.4 percent) World oil demand growth in 1999 and 2000 is expected to be much less than the 1.5 million to 2 million barrel a day growth seen from 1995-1997.
The United States, which accounted for more than half of the growth in world oil demand in 1998 and 1999, is expected to supply only 10-20 percent of world oil demand growth in 2000 and 2001. As Asia continues to recover from the economic crisis of 1997-1998, it is expected to once again become an important engine for world oil demand growth. However, overall demand growth is expected to be stymied somewhat in 2000 as high oil prices slow demand growth, even for a relatively inelastic commodity such as oil. By 2001, oil demand is expected to grow substantially, increasing by nearly 1.9 million barrels per day.
Inventory draw down expected to continue EIA said world oil inventories were drawn down nearly 1 million barrels per day in 1999 (based on world oil consumption averaging 74.7 million barrels a day and world oil supply averaging 73.7 million barrels per day), and are expected to be drawn down by an additional 400,000 barrels a day in 2000.
“This leaves global oil inventories in a particularly precarious position,” the agency said, and the inventory situation is expected to turn around only slowly, beginning with a 400,000 barrel a day build up in 2001, as supply once again exceeds demand.
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