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EIA projects lower WTI crude oil price Agency lowers forecast from June to $88 per barrel average over second half of year, reflecting shifts in oil market expectations Kristen Nelson Petroleum News
The U.S. Energy Information Administration has dropped its forecast for the West Texas Intermediate crude oil spot price average for the second half of the year to $88 a barrel, down $7 a barrel from the agency’s June forecast.
In the July Short-Term Energy Outlook, published July 10, EIA said it has also dropped the U.S. refiner acquisition cost of crude oil by $7 a barrel for the second half of the year, to an average $93 per barrel. The agency has added a Brent crude oil spot price forecast, expected to average $106 per barrel this year and $98 per barrel next year.
EIA said WTI dropped to a year-to-date low of $78 per barrel on June 21; Brent fell to $89 per barrel.
WTI is projected to average $93 per barrel this year, down $4 from the June forecast, and $89 in 2013, down $9 from June.
The price forecasts are based on a world oil-consumption-weighted real gross domestic product growth rate of 2.9 percent for both this year and next.
Less optimistic assumptions EIA said the July forecast is based on “less optimistic assumptions about the global economy,” with the growth rate lowered from the June forecast by 0.1 percent for this year and by 0.6 percent for 2013, to 2.9 percent for both years.
“The weaker growth outlook is prompted by increased economic concerns about the debt crisis in Europe and indications of slowing growth in China, both of which could have spillover effects on other economies,” the agency said.
This year’s global liquid fuels consumption growth forecast was lowered to 700,000 barrels per day from 800,000 bpd in June; the 2013 consumption growth was lowered by 400,000 bpd to 700,000 bpd.
EIA said supply outpaced consumption by an average of 1.1 million bpd in the first half of the year.
Downside uncertainties for prices include a further deterioration in the European Union economic situation; slower growth in China could also curb demand. Prices could be higher if recoveries from supply disruptions are slower than projected, there are additional supply disruptions or supply growth is lower than expected, the agency said.
Non-OPEC supply growing EIA said it expects crude and liquids fuels produced by non-Organization of the Petroleum Exporting Countries to rise by 800,000 bpd this year, and by a further 1.3 million bpd in 2013, with the largest non-OPEC area of growth North America, with continued U.S. onshore shale and other tight oil production growth and continued Canadian oil sands growth. Other areas projected to increase production this year and next are Kazakhstan, Brazil, China, Russia and Colombia. Production is projected to decline in Mexico and the North Sea.
OPEC members are expected to continue to produce about 30 million bpd of crude oil over the next two years, with OPEC production projected to increase by about 800,000 bpd this year and then fall by 900,000 bpd in 2013, “as non-OPEC supply growth increases and stocks rise slightly.”
OPEC members are swing producers in the world market because only they have surplus or spare oil production capacity, mostly in Saudi Arabia. EIA said it projects OPEC spare capacity to average 2.4 million bpd this year and rise to average 3.6 million bpd in 2013.
Domestic production up Domestic crude oil production increased by an estimated 200,000 bpd, 3.7 percent, to 5.7 million bpd last year and is forecast to increase to 6.3 million bpd this year, “the highest annual level of production since 1997,” EIA said.
Lower 48 crude oil production is forecast to grow by 660,000 bpd in 2012 and output from the Gulf of Mexico to stabilize after falling last year, but Alaska production continues to drop by 30,000 bpd.
EIA projects that total domestic crude oil production will increase by a further 410,000 bpd next year, with most of that increase from Lower 48 onshore production.
“That increase is driven by increased oil-directed drilling activity, particularly in onshore tight oil formations,” EIA said.
Onshore oil-directed rig activity, as reported by Baker Hughes, is up from 777 at the beginning of 2011 to 1,419 on July 6, the agency said.
The share of U.S. consumption met by total liquid fuel net imports has been falling since it peaked at more than 60 percent in 2005, EIA said, and averaged 45 percent in 2011, down from 49 percent in 2010.
EIA said it expects the total net import share of domestic production to decline to 41 percent this year and 39 percent next year “as a result of lower consumption and the substantial increases in domestic crude oil production.”
“If the 2013 estimate holds true, it would be the first time the share of total U.S. consumption met by total liquid fuel imports is less than 40 percent since 1991,” the agency said.
Natural gas consumption up EIA said domestic natural gas consumption is expected to average 69.9 billion cubic feet per day this year, up 3.3 bcf per day (4.9 percent) from 2011 and an upward revision of half a billion cubic feet a day from the June forecast. The agency said it expects large gains in electric power use to more than offset declines in residential and commercial use.
Growth in natural gas consumption is projected to slow next year, averaging 71 bcf per day, with growth “driven by consumption increases from the residential, commercial and industrial sectors.”
Total marketed production of domestic natural gas grew by 4.8 bcf per day last year, in large part due to increases in shale gas production, the agency said.
EIA said it “expects a small drop in production in the coming months, reflecting the decline in rigs since October 2011,” reported by Baker Hughes as 542 as of July 6, the lowest gas-directed rig count since 1999.
Natural gas marketed production fell between February and March, rebounding in April.
“Declining production from less profitable ‘dry’ natural gas plays such as the Haynesville shale is offset by growth in production from liquids-rich natural gas production areas such as the Eagle Ford and west areas of the Marcellus shale, and associated gas from the growth in domestic crude oil production,” EIA said.
Natural gas spot prices averaged $2.47 per million British thermal units at the Henry Hub in June, up 4 cents per million Btu from the May average.
“Prices remain at historically low levels; the June 2012 price averaged 46 percent less than the June 2011 price,” EIA said, citing abundant supplies and a warm winter.
The agency expects the Henry Hub spot price to average $2.58 per million Btu this year, increasing to $3.22 in 2013.
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