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Short-Term Energy and Winter Fuels Outlook
October 13, 2010 Release
(Next update November 9, 2010)
Global Crude Oil and Liquid Fuels
Crude Oil and Liquid Fuels Overview. As member states of the Organization of the Petroleum Exporting Countries (OPEC) prepare to meet on October 14 to discuss market conditions, they face an oil market outlook largely unchanged from the previous few months. While commercial oil inventories in the Organization for Economic Cooperation and Development (OECD) countries remain high, floating oil storage has been declining, and EIA believes that a gradual projected reduction in OECD oil inventories over the forecast period should support firming oil prices. The economic outlook has also remained substantially the same, with Asian countries continuing to lead global economic growth. World oil prices are expected to rise gradually as global economic growth leads to higher global oil demand and growth in non-OPEC oil supply slows in 2011. EIA expects OPEC production will rise over the forecast period, keeping oil prices from increasing dramatically. Should OPEC not increase production as global consumption recovers, oil prices could be significantly higher than the central forecast. Conversely, should the global economic recovery be slower than expected, prices could be lower than our forecast.
Global Crude Oil and Liquid Fuels Consumption. World oil consumption growth for 2010 has been revised up slightly to 1.7 million barrels per day (bbl/d) in response to stronger-than-expected growth in oil demand during the first half of 2010 in China, as well as in the OECD. Non-OECD regions, especially China, the Middle East, and Brazil, represent most of the expected growth in world oil demand in 2011 (World Liquid Fuels Consumption Chart). While other OECD regions are showing declines, North America is expected to show oil consumption growth in 2011 of 0.2 million bbl/d. Projected global oil consumption growth in 2011 is 1.4 million bbl/d, unchanged from last month's Outlook.
Non-OPEC Supply. EIA projects non-OPEC liquids supply will increase by 0.9 million bbl/d in 2010, with the growth coming mainly from the United States, Brazil, and the former Soviet Union. The non-OPEC supply projection for 2010 is 0.2 million bbl/d higher than in last month's Outlook, primarily the result of continued near-record crude oil production occurring in Russia. Forecasted total non-OPEC supply falls by 240,000 bbl/d in 2011, chiefly because of declining total North Sea and North American production--with Mexico's production falling by 170,000 bbl/d--as well as decreasing supplies from Russia. This would be only the third time in the last 15 years that non-OPEC supplies fail to grow year-over-year, following non-OPEC production declines in 2005 and 2008, which were mainly the result of supply disruptions in the Gulf of Mexico.
OPEC Supply. EIA expects that OPEC crude oil production will rise slightly through 2011 to accommodate increasing world oil consumption and to maintain OPEC market objectives. OPEC crude oil production is projected to increase by 0.3 million bbl/d and 0.6 million bbl/d in 2010 and 2011, respectively, with non-crude petroleum liquids expected to increase by 0.7 million bbl/d in 2010 and 2011. OPEC surplus capacity should remain near 5 million bbl/d, compared with 4.3 million bbl/d in 2009 and 1.5 million bbl/d in 2008 (OPEC Surplus Crude Oil Production Capacity Chart).
OECD Petroleum Inventories. Commercial oil inventories held in the OECD stood at an estimated 2.78 billion barrels at the end of the third quarter of 2010, equivalent to about 60 days of forward cover, and roughly 90 million barrels more than the 5-year average for the corresponding time of year (Days of Supply of OECD Commercial Stocks Chart). OECD oil inventories are expected to decline through the forecast period, though days-forward-cover should remain high by historical standards.
Crude Oil Prices. WTI oil prices averaged $75 per barrel in September but rose above $80 at the end of the month and into early October as expectations of higher oil consumption pushed up prices. EIA has raised the average fourth quarter 2010 forecasted WTI spot price to $79 per barrel compared with $77 per barrel in last month's Outlook. WTI spot prices are projected to rise to $85 per barrel by the fourth quarter of next year. Projected WTI prices average $78 per barrel in 2010 and $83 per barrel in 2011.
Energy price forecasts are highly uncertain, as history has shown (Energy Price Volatility and Forecast Uncertainty). WTI futures for December 2010 delivery for the 5-day period ending October 7 averaged $83 per barrel, and implied volatility averaged 30 percent. This made the lower and upper limits of the 95-percent confidence interval $68 per barrel and $101 per barrel, respectively, for WTI delivered in December 2010. Last year at this time WTI for December 2009 delivery averaged $69 per barrel and implied volatility averaged 48 percent, with the limits of the 95-percent confidence interval at $49 per barrel and $96 per barrel.
U.S. Crude Oil and Liquid Fuels
U.S. Liquid Fuels Consumption. Projected total U.S. liquid fuels consumption grows by 200,000 bbl/d (1.1 percent) in 2010, and by 110,000 bbl/d (0.6 percent) in 2011, as all of the major petroleum products register consumption growth (U.S. Liquid Fuels Consumption Growth Chart). This reverses the trend of falling consumption from 2006 through 2009. A year-over-year decline in total liquid fuels consumption averaging 40,000 bbl/d in the first quarter of 2010 was followed by a year-over-year rise averaging 430,000 bbl/d in the second and third quarters of 2010, led by increases in motor gasoline and distillate fuel oil consumption. During 2010 as a whole, gasoline consumption is projected to increase by 0.2 percent and distillate consumption to increase by 2.7 percent. Projected gasoline consumption growth increases to 0.8 percent in 2011 while distillate fuel consumption growth moderates to 0.4 percent. Jet fuel consumption grows at an average annual rate of about 0.7 percent through 2011.
U.S. Liquid Fuels Supply and Imports. Domestic crude oil production, which increased by 410,000 bbl/d in 2009, is projected to increase by 100,000 bbl/d in 2010 (U.S. Crude Oil Production Chart). Forecast total domestic crude oil production falls by 60,000 bbl/d to 5.4 million bbl/d in 2011. This projection includes a 170,000 bbl/d decline in the Federal Gulf of Mexico (GOM) and a 130,000 bbl/d increase in lower-48 non-GOM production next year. Projected ethanol production, which averaged 710,000 bbl/d in 2009, increases to an average of 850,000 bbl/d in 2010 and 870,000 bbl/d in 2011.
EIA forecasts that liquid fuel net imports (including both crude oil and refined products), which fell from 57 percent to 51 percent of total U.S. consumption between 2008 and 2009, will average about 50 percent of total consumption in 2010 and 2011.
U.S. Petroleum Product Prices. Projected regular-grade gasoline retail prices rise from an average $2.35 per gallon in 2009 to an average $2.74 per gallon in 2010 and $2.92 per gallon in 2011. On-highway diesel fuel retail prices, which averaged $2.46 per gallon in 2009, average $2.96 per gallon in 2010 and $3.14 in 2011 in this forecast. Refining margins, which have been at their lowest levels since 2003, are projected to average about $2 per barrel higher next year because of growing global product demand and shutdowns of excess global refining capacity.
