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EIA: Declining oil inventories, war worries, flat production quotas drive oil prices Federal agency expects U.S. natural gas prices to be higher this winter than last due to colder weather and recovering industrial economy Petroleum News Alaska
The Department of Energy’s Energy Information Administration said Oct. 7 that continued high world oil prices are the result of declining commercial oil inventories in the major industrialized countries, worries over a potential clash with Iraq and OPEC’s decision to leave production quotas unchanged at its September meeting.
The EIA said solid growth in world oil demand this winter — and for 2003 as a whole — is likely to tighten world oil markets and reduce commercial inventories and noted that the West Texas Intermediate crude oil spot price averaged $29.75 a barrel in September, some $3.50 per barrel above the year-ago level and some $10 above a January low.
The agency said in its October short-term forecast that while it expects home heating fuel supplies to be sufficient “under normal weather conditions,” it also expects residential users to have higher fuel bills this winter than last, with natural gas bills up 19 percent, heating oil up 45 percent and propane up 22 percent.
Natural gas stores ample While natural gas storage supplies remain ample, the EIA said it expects sharp increases in natural gas demand this winter, “largely because of the high probability of comparatively cold weather.” The agency also said it expects a recovery in the domestic industrial economy to drive gas demand up 18 percent over last winter in that sector.
A recovery in the domestic industrial economy would also drive gas demand over the coming winter. The agency expects an 18 percent increase over last winter.
“Much of the accumulated cushion in natural gas storage probably will be expended toward feeding consumption growth,” the EIA said.
Severe power spikes are not likely, but “the prospect of continued strong demand in the industrial and power sectors of the economy should lend support to spot natural gas prices.” The EIA expects natural gas wellhead prices to average $3.34 per thousand cubic feet over the winter, about 90 cents per Mcf above last winter’s price. For all of 2003, it expects an average natural gas wellhead price of $3.25 per Mcf, compared to $2.83 per Mcf projected for this year.
Gas storage is about 5 percent above a year ago, the agency said, and about 12 percent above the previous five-year average for September.
OPEC basket price staying up The EIA said solid growth in world oil demand this winter — and for 2003 as a whole — is likely to tighten world oil markets and reduce commercial oil inventories. The OPEC basket price has been above $22 a barrel since March 8. The September average basket price “of $27.50 per barrel marked the seventh consecutive month that the average monthly OPEC basket price remained within OPEC’s original target range of $22-$28 per barrel.”
While OPEC left production quotas unchanged, the EIA said its outlook assumes OPEC production will rise through the end of 2002 to prevent the basket price from rising above the organization’s target range.
Domestic oil production up The EIA said average domestic oil production is expected to increase by about 70,000 barrels per day in 2002, a 1.2 percent increase, to an average of 5.87 million bpd. A 1.7 percent decrease is expected in 2003, with an average production rate dropping to some 5.77 million bpd.
Lower 48 oil production is expected to increase by 30,000 bpd to 4.87 million bpd in 2002, followed by a decrease of 110,000 bpd in 2003.
Alaska is expected to increase 4.2 percent in 2002 but only 0.9 percent in 2003 and to account for 17.5 percent of U.S. production in 2003, the EIA said.
“The 2003 increase will be the result of field facilities expansion in the new satellite Colville River (Alpine), eventually adding 60,000 to 70,000 barrels per day.”
Northstar production added to the 2002 increase.
Natural gas demand to increase The EIA said it expects 2002 natural gas demand to increase by 3.6 percent over 2001 levels due to higher demand in the industrial and power sectors which is expected to more than offset lower demand for space heating in the first quarter.
Fourth quarter heating demand is also expected to be up over the same period in 2001.
The agency said it expects natural gas demand to increase by 3.5 percent in 2003 as the economic recovery continued.
This winter the EIA expects natural gas demand to average 12 percent higher than last winter, “due to the assumption of normal weather.” Wellhead natural gas prices are expected to rise as demand rises and to average 40 cents higher (6 percent) per Mcf than last winter.
Domestic dry natural gas production is expected to fall by some 1.2 percent in 2002, the EIA said, compared to a growth of 2.4 percent in 2001, but production is expected to rebound in 2003 as demand rises and inventories fall.
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