US cuts oil, natgas price outlooks, citing slowing economy

09 August 2011 19:21  [Source: ICIS news]

WASHINGTON (ICIS)--The US Department of Energy (DOE) on Tuesday lowered its outlook for crude oil and natural gas prices for this year and next, citing the nation’s slowing recovery and suggesting that its price forecasts could fall further.

In its monthly short term energy outlook (STEO), the department said it expects US refiners will pay an average of $100/bbl for crude for full-year 2011 and the price will rise to $107/bbl on average for 2012.

Those price forecasts are down from the department’s estimates of a month earlier, when it said the average 2011 crude price would be $102/bbl and the 2012 cost average would be $108/bbl.

The Energy Information Administration (EIA), the department’s data and analysis arm, noted that its downwardly revised forecast for US crude costs this year and next “assumes that US real gross domestic product (GDP) grows by 2.4% this year and 2.6% next year”.

But according to the latest economic consensus outlook, US GDP might have a hard time reaching 2% growth for this year and could be little better than that in 2012.

The EIA noted that its 2011-2012 forecasts “do not fully reflect recent economic and financial developments that point towards a weaker economic outlook”.

“There is a significant downside risk for oil prices if economic and financial market concerns become more widespread or take hold,” the report said, referring to the recent US debt limit crisis, Europe’s ongoing and worsening sovereign debt problems and sharply lower stock markets in the US and worldwide.

The department also lowered its outlook for US natural gas prices for this year, saying the Henry Hub spot price would average $4.24/MMBtu this year, down from its July forecast of $4.27/MMBtu and 15 cents/MMBtu lower than the 2010 average.

The lower US natural gas price estimate for this year came despite extremely hot weather across much of the US in July, “which contributed to an increase in natural gas consumption for electricity generation compared with July 2010”, the department said.

Despite the increased gas demand, the department also noted that the increase in US inventories of natural gas in July was higher than the same month last year, “and EIA expects that working natural gas inventories will build strongly” through the rest of this year.

Although the administration said it expects the natural gas market to begin tightening in 2012, it nevertheless lowered its full-year 2012 Henry Hub average price forecast to $4.41/MMBtu from last month’s $4.54/MMBtu outlook.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy


By: Joe Kamalick
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