IM: World Oil Prices to Rise Gradually in 2011 on Growth
WASHINGTON (MNI) - Although the outlook for the world oil market is largely unchanged from the previous few months, the U.S. Energy Information Administration Wednesday said it expects world oil prices to rise gradually as global economic growth leads to higher global oil demand and growth in non-OPEC oil supply slows in 2011.
The agency also predicted a "modest" rise in heating bills for U.S. consumers.
In its Short-term Energy Outlook for October, the EIA said while commercial oil inventories in OECD countries remain high, floating oil storage has been declining, and "a gradual projected reduction in OECD oil inventories over the forecast period should support firming oil prices."
Although the EIA said OECD oil inventories are at 60 days of forward cover at the end of the third quarter, it expects declines through the forecast period, "though days-forward-cover should remain high by historical standards."
Noting that the price of West Texas Intermediate rose above $80 at the end of September and into early October on positive economic news and expectations of higher oil consumption, the EIA report raised the average fourth quarter 2010 estimate of the WTI spot price to $79 a barrel compared with $77 in last month's Outlook.
The WTI spot price is projected to rise to $85 a barrel by the fourth quarter of next year, and average $78 in 2010 and $83 in 2011.
"EIA expects OPEC production will rise over the forecast period keeping oil prices from increasing dramatically," the report said.
It warned, however, that should OPEC not increase production as global consumption recovers, oil prices could be significantly higher than the central forecast. On the other hand, should the global economic recovery be slower than expected, prices could be lower than forecast.
OPEC ministers will meet in Vienna Oct. 14 where they are widely expected to maintain current production levels and call for stricter adherence to production quotas.
Also included as part of the short-term outlook was the EIA's projections for winter fuel expenditures by U.S. consumers.
"EIA expects household bills for space-heating fuels will be about 3 percent higher than a year ago, with the average household spending $986 in the October through March winter heating season, an increase of $24 from last winter," EIA Administrator Richard Newell said in a statement accompanying the projections.
The EIA said the higher bills primarily reflect higher fuel prices, although expected colder weather than last winter in the Northeast will also contribute to more fuel use.
It expects the largest increases in fuel expenses to be in households using propane and heating oil. Households using electricity for space heating, particularly in the South, should see lower average fuel bills, in part due to expected warmer weather in the region.
U.S. retail gasoline prices are forecast to average $2.74 a gallon in 2010 and $2.92 in 2011. On-highway diesel fuel retail prices are projected to average $2.96 in 2010 and $3.14 in 2011.
The report also noted that refining margins are expected to average about $2 a barrel higher next year "because of growing global product demand and shutdowns of excess global refining capacity."
The EIA includes updated projections for world oil demand and supply in its monthly outlook, and this month, mainly due to stronger-than-expected growth in oil demand in China in the first half of 2010, it revised up slightly its projection for 2010 world oil demand to 1.7 million barrels per day.
Projected global oil consumption growth in 2011 is 1.4 million bpd, unchanged from last month's outlook.
The EIA added that while oil consumption in other OECD regions will decline, North America is expected to show oil consumption growth in 2011 of 0.2 million bpd.
On the supply side, EIA projects non-OPEC supply will increase by 0.9 million bpd in 2010, 0.2 million higher than last month's estimate, with the growth coming mainly from the United States, Brazil and the former Soviet Union.
It then forecasts total non-OPEC supply to decline by 240,000 bpd in 2011, "chiefly because of declining total North Sea and North American production -- with Mexico's production falling by 170,000 bpd
As for OPEC, the EIA expects the cartel's 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 by the EIA to increase by 0.3 million bpd and 0.6 million bpd in 2010 and 2011, respectively, with non-crude petroleum liquids expected to increase by 0.7 million bpd in 2010 and 2011.
The report said OPEC surplus capacity should remain near 5 million bpd, compared with 4.3 million bpd in 2009 and 1.5 million in 2008.
EIA projects U.S. natural gas consumption to increase of 4.6% this year and 0.1% next year. Consumption of natural gas in the industrial and electric power sectors makes up the bulk of the year-over-year increase in consumption in 2010.
The EIA's projected 0.1% increase in 2011 is the result of about a 1% increase in residential, commercial and industrial natural gas consumption, offset by a 1% decline in electric power sector consumption.
Natural gas inventories in the U.S. are expected to reach 3,726 Bcf at the end of October, the end of the traditional injection season, the report said.
The EIA revised its projections for natural gas prices downward through 2011. Price expectations for the last quarter of 2010 was revised down 6% to $4.16 per MMBtu, "based on several weeks of strong inventory builds." In 2011 the price is expected to rise to $4.58 per MMBtu based on a stronger domestic production forecast.
