Energy Information Administration (EIA) - Short-Term Energy Outlook
Highlights
• Crude oil prices continue to be very volatile. The West Texas Intermediate (WTI) crude oil spot price fell from $71.47 on June 29 to $59.62 on July 14 and then increased to $71.59 by August 3. EIA expects the price of WTI crude oil to stay roughly flat at an average of $70 per barrel in the fourth quarter of 2009, an increase of about $27 compared with the average for the first quarter of the year. The WTI spot price is projected to rise slowly as economic conditions improve, to an average of about $72 per barrel in 2010.
• U.S average prices for regular-grade gasoline, which reached an earlier summer peak of $2.69 per gallon in EIA’s June 22 weekly survey, fell by more than 20 cents per gallon in 4 weeks following the drop in crude oil prices but are now bouncing back as the recent rebound in crude oil prices is passed through to retail markets. Gasoline prices will be strongly influenced by any changes in crude oil prices and, based on recent price volatility, could approach the June 22 peak later this summer. EIA expects the annual average regular-grade gasoline retail price in 2009 to be $2.34 per gallon. Higher projected crude oil prices next year are expected to increase the average price to $2.66 per gallon in 2010. Annual average diesel fuel retail prices are expected to be $2.46 and $2.84 per gallon in 2009 and 2010, respectively.
• EIA expects the monthly average Henry Hub natural gas spot price to stay below $4 per thousand cubic feet (Mcf) until late in the year as natural gas inventories are projected to set a new record high at the end of this year’s injection season (October 31). The Henry Hub price is projected to increase from an average of $3.92 per Mcf in 2009 to an average of $5.48 per Mcf in 2010.
• Carbon dioxide (CO2) emissions from fossil fuels, which fell by 3.2 percent in 2008, are projected to decline by 5 percent this year. Lower CO2 emissions from coal account for more than one-half of the decline. Economic recovery next year and modest growth in energy consumption are expected to lead to a 0.7-percent increase in CO2 emissions.
Global Petroleum
Global Petroleum Overview: The oil market continues to be defined by the tension between optimism over the perceived recovery of the global economy on the one hand and persistently weak global consumption of crude oil and other liquid fuels on the other. There are indications that oil consumption could be recovering outside of the Organization for Economic Cooperation and Development (OECD). However, this has been somewhat offset by an erosion of compliance with production cuts announced by the Organization of the Petroleum Exporting Countries (OPEC). The rising level of global oil inventories when combined with weak current consumption indicates overall weakness in the oil market. For example, U.S. commercial crude oil and petroleum product stocks have increased for 5 straight quarters for the first time since 1979-1980, and they are projected to increase again in the third quarter of this year. As a result, the future level of oil prices will largely depend upon the timing and pace of the global economic re overy and the resultant impact on global oil consumption that would tend to erode surplus stocks.
Global Petroleum Consumption: World oil consumption has dropped sharply since the middle of 2008 in response to the global economic downturn and higher prices. Preliminary data indicate that global oil consumption declined by 3.1 million barrels per day (bbl/d) in the first half of 2009 compared with year-earlier levels. OECD countries accounted for 2.8 million bbl/d of the overall decline, while non-OECD consumption recorded a decline of only 300,000 bbl/d. The current macroeconomic outlook assumes that the world economy begins to recover slightly at the end of this year, led by Asia. As a result, EIA expects world oil consumption to grow year-over-year in the fourth quarter of 2009, the first such growth in five quarters. Overall, global oil consumption is projected to decline by 1.7 million bbl/d in 2009, then rise by 940,000 bbl/d in 2010.
Non-OPEC Supply: Total non-OPEC crude oil and other liquid fuels supply is expected to rise by 410,000 bbl/d in 2009 and by 160,000 bbl/d in 2010. Over the forecast period, higher output from Brazil, the United States, and the former Soviet Union is expected to offset falling production in Mexico and the North Sea. There is some indication that the chronic delays that have plagued non-OPEC projects have begun to ease. However, many projects are still moving forward at a slower pace to either defer necessary investment decisions or take advantage of further reductions in procurement costs.
OPEC Supply: OPEC crude oil production is estimated at 28.7 million bbl/d in the second quarter of 2009, mostly unchanged from first quarter levels, but down 3 million bbl/d from the peak in the third quarter of 2008. The combination of higher prices and OPEC’s historical tendency for weaker compliance with production targets over time suggests that OPEC crude oil production could rise over the remainder of the year, unless prices fall sharply from current levels. Rising global oil inventories and increasing tanker activity would seem to indicate that this past trend is continuing. OPEC is scheduled to meet on September 9 to review market conditions and to consider its production policy.
Global Petroleum Inventories: Based on preliminary data, OECD commercial oil inventories stood at 2.75 billion barrels at the end of the second quarter of 2009. At 61 days of forward cover, OECD commercial inventories were well above average levels for that time of year. EIA expects OECD oil inventories to remain above average levels throughout the forecast period. Industry reports indicate that crude oil and refined products held in floating storage, which are not included in the OECD stock totals, have recently increased to 140 million barrels in response to weakness in global oil consumption and higher levels of contango in the market (i.e., relatively high future prices compared with current prices).
Crude Oil Prices: EIA projects WTI crude oil prices, which averaged $100 per barrel in 2008, to average $60 per barrel in 2009 before recovering to an average of about $72 per barrel in 2010. This projection is unchanged from last month’s Outlook. As always, energy price movements are highly uncertain as seen over the last month in the swing in the WTI crude oil spot price from $71.47 on June 29 to $59.62 on July 14 and back up to $71.59 by August 3. Another measure of how the market reflects this uncertainty is the sizable participation in near-term options on crude oil futures contracts at strike prices that are significantly different from current futures market prices. This reflects the tendency for crude oil prices to fluctuate within a wide range in a relatively short period.
U.S. Crude Oil and Liquid Fuels
U.S. Petroleum Consumption: EIA projects total U.S. consumption of liquid fuels and other petroleum products to decrease by 790,000 bbl/d (4.1 percent) in 2009. This includes projected declines of 320,000 bbl/d (8.2 percent) in distillate fuel consumption and 150,000 bbl/d (9.8 percent) in jet fuel consumption. Motor gasoline consumption is projected to decline slightly in 2009 as the positive impact of the significant price decline compared with last summer offsets some of the negative impact of the economic downturn. The modest economic recovery projected for 2010 is expected to contribute to a 280,000-bbl/d (1.5 percent) increase in total liquid fuels consumption, led by increases of 110,000 bbl/d (3.2 percent) in distillate consumption, 50,000 bbl/d (0.6 percent) in motor gasoline consumption, and 60,000 bbl/d (2.6 percent) in other oils consumption.
U.S. Petroleum Supply: Total U.S. crude oil production averaged 4.95 million bbl/d in 2008, down from 5.06 million bbl/d in 2007. U.S. production is expected to increase to an average of 5.22 million bbl/d in 2009 and 5.25 million bbl/d in 2010. Oil production from the Thunder Horse, Tahiti, Shenzi, and Atlantis Federal offshore fields is expected to account for about 14 percent of lower-48 crude oil production by the fourth quarter of 2010.
Last week the National Oceanic and Atmospheric Administration (NOAA) lowered its outlook for an above-average hurricane season from a 25-percent chance in their May outlook to a 10-percent chance in their 2009 Atlantic Hurricane Season Outlook Update. This revision, combined with no reported shut-in production during June and July, reduces EIA’s original seasonal estimates of crude oil and natural gas production outages by about one-half. However, significant uncertainty always remains as any one storm can cause widespread disruptions and damage.
U.S. Petroleum Product Prices: Regular-grade motor gasoline retail prices, which averaged $3.26 per gallon in 2008, are expected to average $2.34 per gallon this year. Higher projected crude oil prices in 2010 (about 30 cents per gallon on average), along with slightly higher refining margins, are expected to boost average motor gasoline prices to $2.66 per gallon next year. Diesel fuel retail prices, which averaged $3.80 per gallon in 2008, are projected to average $2.46 per gallon in 2009 and $2.84 in 2010.
Carbon Dioxide Emissions
This Outlook introduces a short-term forecast of CO2 emissions from the consumption of the three fossil fuels: coal, natural gas, and petroleum. The economic downturn, combined with natural gas displacing some coal as a source of electricity generation, is projected to lead to a 5-percent decline in fossil-fuel-based CO2 emissions in 2009. We expect an improving economy to increase CO2 emissions from fossil fuels by 0.7 percent in 2010.
Petroleum CO2 Emissions Petroleum CO2 emissions are expected to decline by 4 percent in 2009, primarily due to declines in transportation sector consumption. Although we expect little change in CO2 emissions from motor gasoline during 2009, CO2 emissions from other transportation petroleum fuels, particularly jet fuel (a 9.8- percent decline in consumption), distillate fuel oil (an 8.2-percent decline), and residual fuel oil (a 6.3- percent decline), are expected to fall significantly. CO2 emissions from petroleum in 2010 are projected to increase by 0.6 percent, which is lower than the 1.5-percent increase in total petroleum consumption primarily because of the continued growth in the biofuel share of the transportation fuel markets.
Coal CO2 Emissions Fuel switching in the electric power sector and declines in industrial use are projected to lead to a 7.9-percent decline in coal-based CO2 emissions for 2009. Increases in coal consumption, primarily in the electric power sector, are expected to lead to a 1.1-percent increase in coal CO2 emissions in 2010.
Natural Gas CO2 Emissions Natural gas-based CO2 emissions are projected to decline by 2.3 percent in 2009 despite significant consumption increases in the electric power sector. Natural gas consumption is expected to decline in 2009 for all other major sectors. CO2 emissions from natural gas are expected to grow slightly in 2010 as natural gas consumption increases by 0.5 percent.
