US says oil, natgas prices will continue to climb

08 July 2008 19:12  [Source: ICIS news]

WASHINGTON (ICIS news)--The US Energy Department on Tuesday revised its outlook for energy prices sharply upward, saying oil prices likely will average $127/bbl for this year with natural gas expected to average $11.86/m Btu for 2008.

 

Those revisions represent a 4% upward change in the department’s oil price forecast and a nearly 8% increase in its natgas price prediction since the agency’s earlier short term energy outlook (STEO) just a month ago.

 

The department’s Energy Information Administration (EIA) noted that the spot price for the US benchmark crude, West Texas Intermediate (WTI), rose from $122/bbl on 4 June to $145/bbl on 3 July.

 

“Global supply uncertainties, combined with significant demand growth in China, the Middle East and Latin America, are expected to continue to pressure oil markets,” the administration said.

 

Its new estimate of $127/bbl on average for WTI this year compares with the administration’s forecast of $122/bbl just 28 days ago.

 

“The oil market remains tight, evidenced by rising prices, low surplus production capacity and the concern that global supply growth may not keep pace with demand growth over the near term,” the EIA said.

 

In addition, even though Saudi Arabia plans to boost its daily crude output from 9.4m bbl/day to 9.7m bbl/day, that action “has not resulted in an easing of prices”, the administration said.

 

“Moreover, while the Saudi action adds supplies to the market, remaining available surplus production capacity during the third quarter is at the low level of about 1.2m bbl/day, all concentrated in Saudi Arabia,” the administration noted.

 

Even as global demand for crude is expected to grow by 900,000 bbl/day this year and by an additional 1.4m bbl/day in 2009, “supply losses in Nigeria and heightened tensions between Iran and Israel raise new concerns about future supplies”, the agency said.

 

“World oil consumption continues to grow despite seven consecutive years of rising prices,” the EIA said.

 

US consumption of natural gas - a major feedstock and energy resource for the nation’s chemicals industry - is expected to increase by slightly more than 2% this year, driven in part by weather and by a 3.2% increase in gas consumption for electric power generation and a 1.6% boost in industrial use.

 

US domestic production of natgas is forecast to increase by 6.4% this year, the administration said, it will not be enough to ease pricing pressure.

 

Noting that the Henry Hub spot price for natgas averaged $13.07/m Btu in June, $1.42 or 12% higher than the May average, the administration said that gas prices continue to be pressured by high crude costs, low import volumes for liquefied natural gas (LNG) and a widening year-over-year storage deficit.

 

($1 = €0.64)

 

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By: Joe Kamalick
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