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Some oil price recovery expected by spring, EIA short-term forecast says Natural gas near-term spot prices ‘significantly weakened’ by warm weather and weakness in U.S. industrial production; new gas supply demand expected to remain flat or fall in 2002 Petroleum News • Alaska
The U.S. Department of Energy’s Energy Information Administration said in its December short-term forecast that while “world oil prices have languished below” the range of $22-$28 a barrel preferred by the Organization of Petroleum Exporting Countries, and world market conditions have produced increasing inventories in industrialized countries, the agency still expects to see “some recovery in prices” of crude oil by spring.
“Nevertheless, unless world demand growth recovers more quickly than we now have reason to expect, prices that are comfortably within the OPEC band may be hard to come by over the next year,” the EIA said Dec. 6.
As producing countries “jockeyed over the issue of production cutbacks,” the agency said, OPEC has reported that their basket price averaged about $17.60 per barrel in November, following a $19.60 average in October and $24.30 in September.
Natural gas spot prices weak In natural gas, warm weather and weakness in U.S. industrial production have “significantly weakened” near-term spot prices, the EIA said, with spot prices at the Henry Hub near or below $2 per thousand cubic feet from mid-November through the first week of December compared to $3 at the end of October.
There was an untypical build in natural gas storage levels in November, reflecting “the continuing excess supply situation… It is becoming far less likely now that average spot gas prices will move significantly above $2.00 per thousand cubic feet in 2002 unless some very cold weather intervenes in the near term,” the agency said.
A 5 percent decline in demand for natural gas is projected over the heating season of October to March. Last winter demand grew by 6.7 percent during the heating season. Spot wellhead prices, which averaged $6.49 an Mcf last winter, are expected to be two-thirds lower this winter, about $2.15 an Mcf.
New gas supply requirements in the United States — domestic production and imports — are expected to remain flat or fall in 2002.
Natural gas supply high, prices low The EIA said that underground storage levels for natural gas set a record in November, with net injections into storage continuing through the last week of the month — normally a time when withdrawals exceed injections.
For the end of November the agency said the storage level is estimated to have been about 29 percent above last year’s level.
Increased gas production combined with decreased gas demand over the summer because of mild summer weather. The high price of gas earlier in the year reduced demand, as has the slowing of the economy, particularly in natural gas intensive industrial sectors such as chemicals and primary metals. While gas-directed drilling rates are down sharply since July, this will probably not reduce production enough to prevent relatively low prices this winter and through most of 2002.
The EIA said “pressure on domestic wellhead prices to remain near (and at times below) $2 per thousand cubic feet will be strong through much of 2002.”
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