EIA lowers expectations of oil prices, gas demand

By OGJ editors

The price of West Texas Intermediate crude oil will average about $95/bbl over this year’s second half, and the US refiner acquisition cost of crude will average $100/bbl over the period, the US Energy Information Administration projects in its latest Short-Term Energy Outlook.

The average for both is almost $11/bbl lower than EIA forecast in its previous STEO a month ago. EIA expects 2013 crude oil prices to be relatively flat compared with this year’s prices.

This forecast assumes that US real gross domestic product will increase by 2.2% this year and by 2.4% next year. The recent economic and financial news that points towards weaker economic outlooks could lead to lower economic growth forecasts and further downward revisions to these price forecasts, EIA warned.

EIA also lowered the average regular gasoline retail price forecast for the April-September 2012 summer driving season to $3.60/gal from $3.79/gal in last month’s outlook. EIA expects full-year regular gasoline retail prices, which averaged $3.53/gal in 2011, to average $3.56/gal in 2012 and $3.51/gal in 2013.

US oil demand this year will decline by about 70,000 b/d, or 0.4%, to average 18.76 million b/d, EIA forecasts. In the first quarter, total consumption fell by 3.7% from the same period last year as high prices and record warm weather depressed consumption.

For this year’s second half, EIA expects a 1.2% year-over-year increase of 230,000 b/d in liquid fuels consumption. The bulk of that increase comes from distillate fuel due to projected economic growth and near-normal winter weather, the report said.

In 2013, EIA forecasts that US oil demand will rise by 120,000 b/d, with gasoline demand declining by 30,000 b/d from this year. Distillate fuel oil demand, however, is projected to climb by 90,000 b/d next year.

US crude oil production will average 6.3 million b/d this year, up 600,000 b/d from last year and the highest level of production since 1998, EIA said. Projected US crude oil production is 6.7 million b/d in 2013.

Global oil supply, demand

EIA expects worldwide oil demand growth of 800,000 b/d in 2012 and 1.1 million b/d in 2013, with China, the Middle East, Central and South America, and other countries outside the Organization for Economic Cooperation and Development (OECD) accounting for “essentially all consumption growth,” the report said.

Projected OECD liquid fuels consumption will decline by 400,000 b/d in 2012, and in 2013, OECD liquid fuels consumption will remain essentially flat, with consumption growth in the US offsetting some of the decline in Europe.

EIA expects that OPEC members will continue to produce more than 30 million b/d of crude oil over the next 2 years to accommodate the projected increase in world oil demand and to counterbalance supply disruptions.

US natural gas

Forecast average US gas demand in 2012 is 69.46 bcfd, up 4.1% from last year and down 0.7 bcfd from EIA’s previous monthly outlook. This new projection revises downward the forecast for residential and commercial consumption to reflect a decline in total projected 2012 heating degree-days as reported by the National Oceanic and Atmospheric Administration.

EIA expects that large gains in electric power use will offset declines in residential and commercial use. Projected consumption of gas in the electric power sector grows by nearly 20% in 2012, primarily driven by the increased relative cost advantages of natural gas over coal for power generation in some regions. US gas demand in 2013 is forecast to average 71.3 bcfd.

While EIA expects year-over-year production growth to continue in 2012, the projected increase of 3.4% is below 2011 growth, as low prices reduce new drilling plans.

Natural gas working inventories ended May at an estimated 2.9 tcf, up about 31% from the same time last year.

EIA’s average 2012 Henry Hub natural gas spot price forecast is $2.55/MMbtu, which is 10¢/MMbtu higher than last month’s outlook. EIA expects that Henry Hub spot prices will average $3.23/MMbtu in 2013.

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