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WTI spot crude prices lowest since Feb. ‘05 EIA says markets waiting for compliance with OPEC cuts; price expected to rise over winter, average $66 in ’06, $65 in ‘07 Petroleum News
The recent announcement of cuts of 1.2 million barrels per day in Organization of Petroleum Exporting Countries crude oil production hasn’t impacted world oil prices much, “as the market awaits evidence of substantial compliance,” the U.S. Department of Energy’s Energy Information Administration said in its short-term energy outlook, released Nov. 7.
Recent West Texas Intermediate spot prices are the lowest since February 2005, the agency said. “With some reduction in OPEC oil production, the price of WTI crude oil is projected to rise over the next several months,” averaging around $66 per barrel this year and $65 per barrel in 2007.
Natural gas spot prices, which fell due to moderate temperatures in September and high storage inventories, “have risen sharply in recent weeks,” a price move the agency said “was not unexpected once the heating season began.”
EIA expects Henry Hub natural gas spot prices to average $7.06 per thousand cubic feet in 2006 and increase to an average of $7.79 per mcf next year.
OPEC cut aimed at actual output levels The Nov. 1 cut of 1.2 million barrels per day which OPEC announced in October was different than previous cuts, the EIA said, “in that the stated intent is to reduce production from actual output levels, not just from OPEC production quotas.”
OPEC gave target reductions for each member nation, but did not specify the production level each country would use as the starting point for making the cuts. “The absence of a benchmark contributes to the uncertainty over the amount by which each OPEC member will cut its production,” the agency said, noting that it assumed OPEC production would decline by almost 800,000 bpd from October levels for the rest of 2006.
The combination of reduced OPEC production and growing demand during the winter heating season is expected to result in a rise of “about $2 per barrel each month over the next several months,” the agency said.
“The OPEC oil production cuts provide only a temporary increase in surplus world crude oil production capacity,” EIA said.
An increase in world oil consumption growth in 2007 is expected to increase the demand for OPEC oil above 2006 levels.
“Surplus world crude oil production capacity, all of which is located in Saudi Arabia, is projected to increase only slightly in 2007, thus remaining near 30-year lows.”
Consumption is expected to grow by 1 million bpd in 2006 and by 1.5 million bpd in 2007, with the United States and China projected to account for over half of the worldwide growth in oil consumption in 2007.
Henry Hub expected to stay below $9 per mcf Because of relatively high levels of natural gas storage and a forecast slightly warmer than normal winter, the EIA is expecting the Henry Hub spot market price to stay below $9 per mcf through the winter heating season, with the monthly average expected to peak in January at $8.70 per mcf and the 2006 average expected to be $7.06 per mcf, increasing to $7.79 per mcf in 2007.
Domestic dry natural gas production is expected to increase by about 1.3 percent this year and 0.4 percent next year. Net imports are expected to decline by 6.1 percent this year and increase by 2.6 percent in 2007, primarily due to the rise in liquefied natural gas imports.
EIA said the growing availability of LNG from liquefaction facilities in Trinidad and Tobago and Nigeria contribute to the expected increase in imports in 2007. “However,” the agency said, “U.S. LNG imports will continue to be affected by price competition from other LNG-consuming economies, particularly in Europe.”
Working gas in storage was 3.452 trillion cubic feet on Oct. 27, 288 billion cubic feet above the year-ago level and 276 bcf above the five-year average for that date, near the agency’s estimated maximum working gas storage capacity of about 3.6 tcf.
By the end of winter (March 31), working gas inventories are projected to be about 1.405 tcf, 285 bcf below the level of 1.69 tcf at the end of March 2006, but still about 150 bcf above the average of the last five years. l
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