EIA forecasts higher summer fuel prices, tightening oil market

By OGJ editors
HOUSTON, Apr. 12
-- With robust growth in global oil demand and slow growth in supply from producers outside the Organization of Petroleum Exporting Countries, oil markets will continue to tighten over the next 2 years, EIA said in its latest Short-Term Energy and Summer Fuels Outlook.

This will result in an expected drawdown of petroleum inventories and a call for greater production from OPEC members, which will reduce surplus crude oil production capacity at a time when the disruption of crude oil exports from Libya and continuing unrest in other Middle East and North African countries already highlight supply risks, EIA said.

EIA projects that the price of West Texas Intermediate crude will average $106.38/bbl in 2011 and $113.50/bbl in 2012, increases of $5/bbl and $9/bbl, respectively, from last month’s outlook.

Among the major uncertainties that could move oil prices above or below EIA’s forecast are the continued unrest in producing countries and its potential impact on supply; decisions by key OPEC member countries regarding their production response to the global increase in oil demand; the rate of economic growth, both in the US and worldwide; fiscal issues facing national and subnational governments; and China’s efforts to address concerns regarding its growth and inflation rates.

EIA expects worldwide oil demand will average 88.2 million b/d this year and 89.76 million b/d in 2012, up from 86.68 million b/d last year.

Gasoline, diesel prices
EIA projects that the retail price of regular-grade motor gasoline will average $3.86/gal during this year’s summer driving season, up from $2.76/gal last summer.

The annual average regular retail gasoline price will increase to $3.70/gal in 2011 and to $3.80/gal in 2012 from $2.78/gal in 2010, according to the outlook.

These price projections reflect a higher refiner acquisition cost of crude oil, expected to average $112.50/bbl this summer compared with last summer’s average of $74.70/bbl. EIA expects wholesale gasoline margins to average 53¢/gal this summer compared to 36¢/gal last summer, largely due to continuing strength in worldwide demand for liquid fuels.

Current market prices of futures and options contracts for gasoline suggest a 33% probability that the national monthly average retail price for regular gasoline could exceed $4/gal this July, EIA said.

The projected increase in gasoline prices suggests that vehicle fueling costs for the average US household will be about $825 this year than they were in 2010.

Diesel fuel prices, which averaged $2.98/gal last summer, will average $4.09/gal this summer, EIA forecasts.

Natural gas
Working inventories of natural gas in the US ended March at 1.6 tcf, down slightly from a year earlier. EIA expects that working gas inventories will remain relatively high throughout 2011, but that industrial demand will push 2011 demand to average 66.7 bcfd, slightly higher than during 2010.

The Henry Hub natural gas spot price is forecast to average $4.10/MMbtu in 2011, down $0.29/MMbtu from the 2010 average. EIA expects the natural gas market to begin to tighten in 2012, with the Henry Hub spot price increasing to an average of $4.55/MMbtu, as higher industrial and electric power demand offsets lower residential and commercial demand and drives average demand for the year to 67.2 bcfd.

EIA forecasts that US gas production will grow by 2.4% this year to 63.3 bcfd and by a further 0.8% in 2012. For both 2011 and 2012, declines in federal Gulf of Mexico production will be more than offset by increases in production in the lower‐48 states, EIA said.

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