EIA sees global economic recovery restoring oil demand growth

Global oil demand declined a second consecutive year in 2009 for the first time since 1983, the US Energy Information Administration said.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Jan. 13 -- Global oil demand declined a second consecutive year in 2009 for the first time since 1983, the US Energy Information Administration said. But the decline hit bottom in mid-2009 and the worldwide economy began to recover during the second half, it observed on Jan. 12 in its latest short-term energy outlook.

It expects the recovery to continue, contributing to global oil demand growth of 1.1 million b/d in 2010 and 1.5 million b/d in 2011. Countries outside the Organization for Economic Cooperation and Development are likely to account for most of 2010’s growth, although US demand is projected to increase slightly by 200,000 b/d after a very weak 2009, EIA said.

“The world oil market should gradually tighten in 2010 and 2011, provided the global economic recovery continues as projected,” it said. While it anticipates that non-OECD countries will lead this year’s oil demand recovery, “OECD countries should begin to show significant oil demand growth in 2011 in response to improving economic conditions,” EIA continued. It said it expects OECD countries’ overall economic growth to more than double from 1.2% in 2010 to 2.7% in 2011.

EIA said while compliance with production cuts announced by the Organization of Petroleum Exporting Countries has weakened and global inventories and spare production capacity remain very high historical standards, expectations of a continued global economic turnaround have buttressed oil markets. It forecast that prices for West Texas Intermediate, the US benchmark crude, which have been trending upward since February 2009, will continue to climb in 2010 and 2011.

“Non-OPEC oil supply increased by more than 600,000 b/d in 2009, the largest annual increase since 2004,” EIA said, adding that higher production in the US, Brazil, and the former Soviet Union (FSU) were the largest contributors.

Very little increase
It nevertheless expects very little increase in non-OPEC supply during 2010-11, with a 400,000 b/d rise this year followed by a 100,000 b/d decline next year. Brazil, where EIA expects production to increase by 400,000 b/d by the end of 2011 from rising offshore and biofuels activity, is the largest contributor, with an additional 200,000 b/d each from the US and the FSU. “However, large declines in production from the North Sea [700,000 b/d] and Mexico [400,000 b/d) are responsible for offsetting these sources of growth,” it said.

EIA said while world oil markets have firmed in partial response to OPEC’s production cuts since a year ago, the global economic recovery’s strength and durability is still uncertain. It forecast that annual average OPEC crude production, which fell by almost 2.2 million b/d on average during 2009, will increase by an average 500,000 b/d through 2011 as global oil demand recovers. EIA also expects OPEC production of non-crude petroleum liquids, which production targets do not cover, to grow by 600,000 b/d in 2010 and 700,000 b/d in 2011.

It suggested that OPEC’s surplus production capacity, which averaged 2.8 million b/d during 1998-2008, will continue to be high, reaching almost 6 million b/d by yearend 2011. It also said that OPEC’s world market share could rise from 40% in 2009 to 42% in 2011 because of low supply growth outside the cartel. “The combination of higher market share and the relatively high level of surplus production capacity would give the group greater influence over the world oil market in coming years,” EIA said.

US crude oil production, meanwhile, grew 360,000 b/d year-to-year to an average 5.31 million b/d in 2009, it continued. It forecast slower growth in 2010 (130,000 b/d) followed by a slight 20,000 b/d decline in 2011. EIA also expects domestic ethanol production to keep rising to meet the federal renewable fuel standard’s requirements, climbing from an average 690,000 b/d in 2009 to 790,000 b/d in 2010 and 840,000 b/d in 2011.

US demand falls

“Liquid fuels consumption declined by 810,000 b/d, or 42%, in 2009—the second consecutive annual decline,” EIA reported. “Motor gasoline was the only major petroleum production whose consumption did not decline, having increased by a scant 0.1%. Despite the cold weather that gripped much of the nation in late December, average annual distillate fuel consumption declined by 330,000 b/d, or 8.3%, in 2009, led by a precipitate decline in transportation usage.”

Noting that regular gasoline prices increased from a nationwide monthly average of $1.79/gal in January 2009 to $2.61/gal in December, the federal energy forecasting and analysis service said that it expects those prices to average $2.84/gal in 2010 and $2.96/gal in 2011.

“Pump prices are likely to pass $3/gal at some point during the upcoming spring and summer,” it added. “Because of growth in motor gasoline consumption, the difference between the average gasoline retail price and the average cost of crude oil widens in 2010 before starting to level out in 2011.”

It forecast that on-highway diesel fuel prices, which averaged $2.46/gal in 2009, will average $2.98/gal in 2010 and $3.14 in 2011. “As with motor gasoline, the expected recovery in the consumption of diesel fuel in the US, as well as growth in distillate fuel usage outside the US, strengthens refining margins for distillate throughout the forecast period,” EIA said.

It also expects the average price for WTI to grow from $62/bbl in 2009 to $80/bbl in 2010 and $84/bbl in 2011, assuming that US real gross domestic product grows by 2% in 2010 and 2.7% in 2011 while world oil-consumption-weighted real GDP grows by 2.5% in 2010 and 3.7% in 2011.

Contact Nick Snow at nicks@pennwell.com.

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