Crude oil prices will drop from current high levels to an average $21-21.50/bbl in 1997-98, the U.S. Energy Information Administration predicts in its latest short-term outlook.
An average decline of about $1/bbl is seen this quarter from fourth quarter 1996, given the resumption of Iraqi oil exports to world markets.
A decline is less likely if winter weather is abnormally cold in the weeks ahead.
Despite the decline, EIA's predicted price is up from its previous forecasts.
Supply/demand squeeze
"Strong world oil demand and relatively low inventories have kept persistent pressure on spot prices in recent months," EIA said.
"Residential heating oil prices for the fourth quarter of 1996 averaged $1.05/gal, 16¢/gal above the fourth quarter of 1995.
Much of this increase reflects the increase in crude oil prices (14¢/gal) over the same period.
"Assuming normal weather over the next few months, residential heating oil prices in the first quarter of 1997 are expected to be about $1.06/gal, 10¢/gal higher than the same period in 1996, with about 80% of that increase being related to crude oil price increases...Retail prices would be expected to be up to 6¢/gal higher than in the base case if weather is 10% colder than normal."
Rebuilding stocks
It said U.S. stocks of distillate fuels have been well below year-ago levels so far this heating season, although relatively mild weather in the Northeast has tended to alleviate the situation somewhat.
European stocks have also been low, contributing to generally tight Atlantic basin supplies.
"Maintaining or improving the relative stock situation during the rest of the winter in the U.S. will probably require higher imports and/or more distillate production than seen last year.
"On the domestic production side, U.S. refiners have proven they are capable of producing distillate at high rates, based on an estimated year-over-year increase for the fourth quarter of 1996 of nearly 10%."
EIA said world oil inventories will be at least partially rebuilt in 1997 from currently low levels. Over the course of 1997, the additional Iraqi oil exports are equivalent to adding another 3 days' worth of supply to the world market. EIA said in 1997, total U.S. net oil imports of 8.9 million b/d are projected to exceed 1977's record high of 8.6 million b/d and equal to 49% of total petroleum demand.
The record high is expected despite recent slower declines in U.S. oil production and higher average oil prices.
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