US sees higher crude, lower natgas prices this year and next

08 November 2011 19:43  [Source: ICIS news]

WASHINGTON (ICIS)--US energy officials on Tuesday raised their price forecast for crude oil for this year and next, citing Middle East unrest, but they lowered pricing predictions for natural gas because US production is expected to exceed consumption.

In its monthly short term energy outlook (STEO), the Energy Department’s Energy Information Administration (EIA) said it expects the US average refiner acquisition cost for crude oil will be $100/bbl (€73/bbl) for this year and next.

That outlook marks an increase from the administration’s estimate of last month, which predicted average crude costs of $99/bbl for this year and only $98/bbl for 2012.

The forecast for higher average crude oil prices comes in spite of what the administration said were its lower expectations for global economic growth.

The EIA, the department’s energy data and analysis branch, said global gross domestic product (GDP) growth in 2012 would be only 3.1%, down from the administration’s month-earlier estimate of 3.5% GDP growth for next year.

But while global economic growth is expected to be lower than earlier forecast, the administration said “oil prices continue to face upward price pressure because of supply uncertainty resulting from ongoing unrest in oil-producing regions of the Middle East and North Africa”.

That could change, the administration said, if Libya is able to ramp up oil production and exports sooner than expected, which would put downward pressure on crude pricing.

At the same time, the report said, additional downside risks could lower crude prices “as fears persist about weakening global economic growth, contagion effects of the debt crisis in the EU and other fiscal issues facing national governments”.

In natural gas, the department’s analysts said they see the US benchmark Henry Hub spot price averaging $4.09/MM Btu for full-year 2011, down from last month’s forecast for $4.15MM Btu.

EIA also lowered its gas price outlook for 2012, saying the Henry Hub spot average for next year would likely be $4.13/MM Btu, considerably lower than its October STEO prediction of $4.32/MM Btu.

Those natgas price forecast reductions come despite what the administration said would be a 1.7% increase in gas consumption for this year and a 1.1% gain in demand for 2012.

Those advances in US natural gas consumption – rising to 67.1bn cubic feet (bcf) per day this year – were credited to a 2% gain in natgas consumption by industry and a 1.5% increase in use by the electric power sector.

But the increased pricing pressure that ordinarily would result from such demand growth would be more than offset by gains in domestic natural gas production, the department said.

EIA said it expected domestic US natural gas production to increase by 6.1% this year compared with 2010.

“All of this growth comes from higher onshore production in the lower 48 states,” the department said, “which more than offsets a year-over-year decline of 17% in the federal Gulf of Mexico.”

US natural gas production was expected to see continued growth in 2012, the EIA said, although the pace of expansion next year would be a more modest but still substantial 2%.

($1 = €0.73)

By: Joe Kamalick
+1 713 525 2653

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