The US Energy Information Administration on July 8 increased its predicted decline in domestic petroleum consumption for 2008 by 100,000 b/d to 400,000 b/d in its latest short-term energy outlook. It cited prospects for a weaker domestic economy and record high crude oil and product prices extending into 2009, when it expects demand to remain “almost flat at the 2008 level.”
West Texas Intermediate crude, which averaged $72/bbl in 2007, is projected to average $127/bbl this year and $133/bbl in 2009.
Worldwide, oil markets remain tight as consumption continues to grow despite 7 years of rising prices, and production isn’t rising as quickly as expected.
“Preliminary data indicate that world oil consumption during the first half of 2008 rose by roughly 520,000 b/d compared with year earlier levels,” it said. The increase reflects a 170,000 b/d year-to-year gain in the first 3 months, followed by an 870,000 b/d increase in the second quarter, the monthly report indicated.
More than offset
“A 760,000 b/d decline in consumption in [Organization for Economic Cooperation and Development] countries during the first half of 2008, mainly concentrated in the US, was more than offset by a 1.3 million b/d increase in non-OECD nations, led by China and the Middle East,” it said.
EIA expects worldwide oil demand to climb by almost 1.2 million b/d during 2008’s second half in response to higher prices, less economic growth and growing pressure on China, India, and other countries to ease price subsidies. Global consumption could rise by 1.4 million b/d in 2009 if Latin America and other regions’ economic growth continues. Demand would grow less if US financial strains spread.
Supplies are not growing as quickly as originally anticipated, especially outside the Organization of Petroleum Exporting Countries. In early 2008, EIA predicted that non-OPEC supplies would grow by 860,000 b/d this year and more than 1.5 million b/d in 2009. It now expects increases of 230,000 b/d in 2008 and 830,000 b/d next year, primarily because of less production from Russia and the North Sea and lowered expectations for Brazil.
OPEC falls short
Production growth within OPEC also has been less than expected, rising only 100,000 b/d from the first quarter to an average 32.3 million b/d in the second quarter. Nonetheless, “higher production in Iraq and Angola more than offset lower production in Nigeria caused by security problems and worker strikes,” EIA said.
If Saudi Arabia increases production to 9.7 million b/d in July, as it promised, OPEC crude production could average 32.7 million b/d during the third quarter. That would leave available surplus capacity at 1.2 million b/d, all held by the Saudis, it added.
Any industry operating at nearly 99% of capacity will remain vulnerable to surprises boosting consumption or disrupting production. EIA observed. “Such surprises would place additional upward pressure on prices and contribute to oil price volatility.”
