WASHINGTON (ICIS)--Record cold winter weather over the last five months has boosted demand for oil and natural gas, the US Energy Department said on Tuesday, meaning that prices for both are on the rise and will increase for 2014 overall.
In its monthly short-term energy outlook (STEO), the department’s Energy Information Administration (EIA) noted that winter temperatures east of the Rocky Mountains “have been significantly colder this winter [October-February] compared with the same period both last winter and the average for the past 10 years”.
That harsh winter weather strained US energy distribution networks and put upward pressure on consumption and prices of fuels used for space heating, the report said.
US average heating degree days - an EIA measure of winter severity - were 13% higher than last winter, the report said, and even 10% above the 10-year average for the October-February period.
Regionally, the EIA said that the winter of 2013-2014 was 13% colder in the northeast and 19% colder in the Midwest and south compared with a year ago. Winter in the west was 5% warmer than the year before.
The cold weather caused “continuing large withdrawals of natural gas from storage and a surge in natural gas spot prices”, said the administration, with spot prices hitting record levels in several markets during cold snaps.
Spot prices at the Henry Hub increased from $3.95/MMBtu on 10 January to a high of $8.15/MMBtu on 10 February, the EIA said, before falling back to $4.61/MMBtu on 27 February and then bouncing back up to $7.98/MMBtu on 4 March.
In part because of that harsh winter demand, the EIA said it was raising its Henry Hub gas price forecast for 2014 to a full-year average of $4.44/MMBtu, up from the 2013 average of $3.73/MMBtu.
The administration’s outlook for the 2014 natgas average price is up by $0.28/MMBtu from the outlook issued in February.
Natural gas is the principal feedstock for US petrochemical producers and downstream chemicals manufacturers and also serves as a major energy fuel for the sector.
In crude oil, the outlook said that the WTI spot price, which had fallen to $95/bbl in January this year, rose to an average of $101/bbl in February “as a result of strong Midwestern refinery runs after cold weather related disruptions in January”.
The EIA said that it also is raising its crude price outlook for this year, expecting that WTI prices will average $95/bbl in 2014, an increase of $2/bbl compared with the administration’s February estimate.
For 2015, EIA is predicting the average WTI price will ease to $90/bbl, citing “strong US crude production growth”.
“Over the next two years, US refining capacity and crude oil inputs to refineries are expected to increase as companies expand and build capacity to process the light crude oil from rising domestic production,” said EIA chief Adam Sieminski.
Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy