EIA predicts higher prices for US oil, gas
By OGJ editors
HOUSTON, May 14 -- Pushed by a combination of psychological factors and market fundamentals, the market price for US benchmark West Texas Intermediate (WTI) prices could rise to almost $30/bbl in 2003, unless members of the Organization of Petroleum Exporting Countries increase production by a meaningful amount in the last half of this year, officials at the US Department of Energy's Energy Information Administration said recently.
Although OPEC ministers have since indicated that they will not change the group's current production quotas at their June meeting, EIA officials assumed in a May 6 report that the increase will occur, keeping WTI prices below $30/bbl.
World oil prices continued to rise in April, marking the second consecutive month that the average price for OPEC's basket of seven benchmark crudes finished above $22/bbl, the lower end of the group's target range. Prices for both the OPEC basket and North Sea Brent crude increased by $2/bbl on average from March levels. The price for WTI averaged more than $26/bbl in April, and closed above $27/bbl by month's-end, EIA officials said.
US oil supply
Average US oil production is expected to increase by 50,000 b/d, or 0.9%, this year to 5.89 million b/d. For 2003, a 0.6% increase is expected for an annual production rate average of 5.93 million b/d.
IEA predicted Alaska's oil production will increase by 3% this year and by another 5.4% in 2003 to account for 17.6% of total US oil output by that time. The 2003 increase will result from field facilities expansion in the new North Slope field on the Colville River, Alpine. An northern Alaska field, North Star, came on stream in the Beaufort Sea in November 2001 at a rate of more than 50,000 b/d. Production from Kuparuk River field plus new production from the North Slope satellites West Sak, Tabasco, Tarn, and Meltwater is expected by EIA officials to stay at an average of 220,000 b/d during 2002-03.
Lower 48 oil production is expected to increase by 21,000 b/d to 4.91 million b/d this year, followed by a decrease of 20,000 b/d in 2003. Oil production from Shell Oil Co.'s Brutus platform is expected to peak at 100,000 b/d this year. EIA officials said the Mars, Troika, Ursa, Diana-Hoover, and Brutus fields in the Gulf of Mexico are expected to account for 9.2% of Lower 48 oil production by fourth quarter 2003.
Gasoline outlook
Meanwhile, EIA reported US regular grade gasoline prices stabilized at an average $1.40/gal at the pump in April, after surging by a record breaking 23¢/gal during March. "It is likely that pump prices will soon rise after this current pause, since crude oil prices and demand for gasoline are both expected to increase over the next several months," officials said.
US gasoline prices averaged $1.70/gal in May 2001, a record high in current-dollar terms. However, EIA estimates US gasoline inventories were lower then by 10 million bbl, or 5%, than now.
"Assuming no major supply disruptions and assuming our base case of rising crude oil prices, gasoline pump prices could gain an additional 8-10¢/gal by June from the April average price of $1.40/gal," said EIA officials. "The summer average [April to September] is now expected to center around $1.44/gal, about 10¢/gal below the 2001 summer average."
Natural gas market
The US gas market this summer is projected to grow 4.4% above last summer's level because of lower gas prices and the slowly reviving economy.
US spot prices for natural gas have hovered above $3/Mcf since March, partly as a result of unusual weather patterns in March and April, EIA reported. March and much of April were colder than normal, but an unusual and intense heat wave also occurred in late April, producing a surge in electricity demand for cooling with subsequent increased demand for natural gas by the power sector.
That was exacerbated by the rising price of crude due to market concerns over political tensions in the Middle East and a sense that the US economy is recovering more rapidly than previously expected, officials said. Incremental new capacity of gas-burning plants, both proposed or under construction, also is adding to gas demand growth.
Meanwhile, natural gas production, as well as drilling and exploration, have recently fallen off, resulting in a less rosy supply outlook for the near term.
Nevertheless, EIA officials said, "For this year, assuming normal weather and barring any major supply disruptions, the annual average natural gas wellhead price is projected to be about $2.80/Mcf, compared [with] over $4/Mcf last year."
Natural gas demand is projected to increase by 2.8% this year over 2001 levels and to increase by another 4.2% in 2003, primarily as a result of growing demand for gas in the industrial and electric power generating sectors. By 2003, all market sectors are expected to increase demand for natural gas.