Global oil market to remain strained - US agency

06 November 2007 19:04  [Source: ICIS news]

HOUSTON (ICIS news)--Global oil markets will likely remain stretched during the next several months as world oil demand has continued to grow faster than supplies outside of OPEC, while US natural consumption for 2007 is expected to rise by 4.5%, government sources said on Tuesday.

“Additional fundamental factors contributing to [oil] price volatility include ongoing geopolitical risks, ... inventory tightness, and worldwide refining bottlenecks,” the US Energy Information Administration (EIA) said in its November short-term outlook. “As a consequence, crude oil prices are expected to remain high and volatile,” the EIA said.

The oil situation has resulted in West Texas Intermediate (WTI) crude oil prices staying well over $80/bbl of October and even topping $90/bbl towards the end of the month, the EIA said.

“If oil producers increase output, as we have assumed, crude oil prices should ease somewhat,” the EIA continued. “Nevertheless, monthly average prices are expected to exceed $80 per barrel over the next several months and remain well above $70 per barrel throughout the forecast period.  Fourth-quarter 2007 WTI prices are expected to average $87 per barrel.”

Total US petroleum consumption is expected to increase by 0.5% in 2007 and 1.0% in 2008, the EIA said, despite the higher oil and petroleum product prices. Continued economic growth and colder average temperatures this winter than last winter combine to push demand higher, according to the administration.

World oil consumption continues to rise despite higher oil prices, the administration said.

World oil consumption in the fourth quarter was projected to be 1.8m bbl/day above fourth-quarter 2006 levels, slightly lower than the administration’s projections last month due to a downward revision in US consumption.

The EIA projected that world oil consumption will increase by 1.5m bbl/day in 2008, similar to last month’s assessment.

“The outlook assumes that China, the United States, Russia, and Middle Eastern countries will continue to be the main drivers of increased global oil use,” the EIA said. “The possibility of slower economic growth due to higher prices and turmoil in the financial markets is the main threat to sustained oil consumption growth.”

Non-OPEC production was expected to continue to rise through 2008, the EIA said.

“Supply growth in the fourth quarter of 2007, compared with year-earlier levels, is expected to approximate 0.6m bbl/day, up 180,000 bbl/day from last month’s outlook,” the administration said.

Non-OPEC supply in 2008 was forecasted to increase by 0.9m bbl/day, the EIA said. Gains in Brazil, the US, Russia and Canada will more than offset lower production in a number of countries, including Mexico, the United Kingdom, Norway, and Egypt.    

Led by higher Saudi output, OPEC crude oil production in the fourth quarter of 2007 was projected to rise by over 500,000 bbl/day from third-quarter volumes.  Projected OPEC crude supply was nearly 100,000 bbl/day higher than estimated in last month’s EIA outlook, due to higher volumes expected from Angola.

Total US petroleum consumption was projected to average 20.8m bbl/day in 2007, up 0.5% from the 2006 average, the EIA said, with a further 1.0% increase in 2008 to an average of 21.0m bbl/day.

Motor gasoline consumption was projected to increase by 0.7% in 2007, the EIA said, followed by 1.0% growth in 2008.  Reflecting moderate growth in the economy, total distillate consumption is projected to increase by 1.5% in 2007 and 1.3% in 2008.

US crude oil production was projected to average 5.1m bbl/day, 0.3% higher than 2006 production levels. Domestic production in 2008 is projected to rise to 5.2m bbl/day, an increase of 1.9%.

Commercial US crude oil inventories have generally been declining since May, a trend that was expected to continue through the forecast, the EIA said. As of 31 October, total motor gasoline inventories were an estimated 195m bbl, down 10m bbl from 2006 and 4m bbl below the previous 5-year average.

Natural gas in storage, meanwhile, reached a record 3,510bn cubic feet (bcf) as of 26 October, the EIA said.

Natural gas is a key feedstock for the US petrochemical industry.

“The abundant level of storage and limited fuel switching capability have mitigated the impact of the recent price increases in petroleum markets on natural gas prices,” the EIA said. “The Henry Hub spot price is expected to average about $7.30/1,000 cubic feet in 2007 and $8.01/1,000 cubic feet in 2008.”

Total US natural gas consumption for 2007 was expected to rise by 4.5% primarily because of increases in the residential, commercial, and electric power sectors that occurred in the early part of the year, the EIA said.

In 2008, US natural gas consumption was projected to grow by 0.9%, the EIA said. In the residential sector, consumption was expected to increase by 2.0% in 2008, with 0.9% and 1.3% growth expected in the commercial and electric power sectors, respectively. 

Consumption in the industrial sector was projected to decline by 0.7% in 2007 and remain relatively unchanged in 2008, the EIA said.

US natural gas production was expected to rise by 1.4% in 2007 and by 1.3% in 2008.

“In 2007, rising natural gas production in the Lower-48 onshore region has been partially offset by lower production in the Gulf of Mexico,” the EIA said. “Ongoing efforts to develop unconventional reserves are expected to increase Lower-48 onshore production by 2.2% this year and by 0.3% in 2008.

Although production in the Gulf of Mexico was expected to decline by 2.8% in 2007, the development of deepwater supply sources was expected to lead to production growth of 7.4% in 2008. 

Imports of liquefied natural gas (LNG) have slowed substantially since earlier this year, the EIA said, reflecting changes in world LNG supply and demand.

“Several LNG producers are experiencing difficulties maintaining full production levels at the same time as strong demand in other parts of the world has resulted in higher prices, which divert cargos away from the United States,” the EIA said. 

“For example, Japan, which is the world’s largest importer of LNG, is using more LNG for electricity generation following an earthquake that resulted in the ongoing shutdown of a major nuclear power plant,” the EIA said.

Despite the current reduction in US LNG imports, they were still expected to increase by 39% in 2007 and by 24% in 2008 as global liquefaction capacity continues to increase, the administration said.

By: Brian Ford
+1 713 525 2653

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