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EIA projects flat oil prices until end of summer Starting in fall, prices expected to rise gradually through 2000 as world oil inventories decline toward more normal levels Petroleum News Alaska Staff
The U.S. Department of Energy’s Energy Information Administration said July 8 in its Short-Term Energy Outlook Summary (July 1999) that despite a substantial increase in spot prices for crude oil at the very end of June it has not significantly changed its crude price forecast.
EIA said it had raised its price forecast slightly for the next couple of months.
“However,” the agency said, “the story is essentially the same: the combination of demand and supply changes will probably prevent even a normal seasonal increase in world oil inventories this year...”
EIA said it expects prices “to remain more or less flat until the end of the summer when world demand begins to exhibit some of the larger year-over-year increases expected for 1999.” Prices are then expected to rise gradually through 2000 as world oil inventories continue to decline toward more normal levels.
By the end of 2000, EIA said it expects worldwide prices to be about $17.25 a barrel (a West Texas Intermediate price of about $19.75 a barrel).
OPEC production cuts the basis That price forecast, EIA said, “is based on OPEC complying with about 80 percent of their pledged cuts for the second quarter of 1999, with compliance declining thereafter.”
The agency said part of the reason prices are above what it expected is “that the market is expecting more oil demand growth from Asia than it had been earlier, and some analysts are estimating that OPEC compliance is above 90 percent in June.” EIA had anticipated a return to growth in Asian oil demand in 1999 and 2000, but did not expect OPEC compliance rates of 90 percent or more.
Demand projections the same EIA is still estimating that world oil demand will grow by about 1.2 million barrels per day in 1999, and by another 1.7 million barrels per day in 2000. The forecast assumes that Asian oil demand begins recovering this year from 1998’s sharp downturn, with the recovery continuing through 2000.
Non-OPEC production is expected to remain relatively flat in 1999; OPEC compliance with production cuts is expected to decline in the second half of 1999 as higher prices increase incentives for production. EIA is projecting that non-OPEC oil production will increase in 2000 as higher oil prices counteract some of the same forces that caused oil production to lag in 1999.
Natural gas price forecast unchanged EIA said its natural gas wellhead price forecast remains fundamentally unchanged, with the wellhead price expected to stay above $2 per thousand cubic feet. The wellhead price averaged below $2 per thousand cubic feet throughout 1998, held down by high storage levels. “Assuming a normal winter and rising demand in the industrial sector,” EIA said it expects the average wellhead price to average about 37 percent above last-winter’s mild-weather prices.
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