$4 Gasoline In September According to EIA

Jim Brown
 
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The U.S. Energy Administration (EIA) issued its Short Term Energy Outlook for January (STEO) claiming demand would rise and inventories would fall with gasoline prices over $4 possible this year.

If you think the current national average of $3.09 per gallon is high then you better start thinking hybrid or electric. The EIA is predicting summer gasoline prices will average $3.22 this summer and $3.34 in the summer of 2012. In order to average $3.22 they are expecting to see spikes over $3.50. They also claim there is a 10% chance of prices rising to more than $4 due to increased demand and supply disruptions.

Their prediction for the average price for all of 2011 is $3.17 and $3.29 for 2012. The average price in 2010 was $2.78 and $2.35 in 2009.

The EIA is projecting diesel to average $3.40 this year and $3.50 in 2012. The actual average was $2.46 in 2009 and $2.99 in 2010.

The EIA is expecting global demand for oil to rise steadily over the next two years. Demand for 2011-2012 is expected to rise by an average of 1.5 million barrels per year with prices averaging $93 in 2011 and $99 in 2012.

Global production is rising much slower with non-OPEC liquids production to rise by a net of only 160,000 bpd in 2011 and ONLY 20,000 bpd in 2012. Increases will come from China, Canada and Brazil. Declines from Mexico of 200,000 bpd and -120,000 bpd from the United Kingdom will wipe out a significant portion of the increases from those countries previously listed leaving that very small gain.

The EIA expects OPEC production to increase by 500,000 bpd in 2011 as they eventually ease the cutbacks. It is then expected to rise by another 1.0 mbpd in 2012. Non crude liquids (NGLs) could rise by 700,000 bpd in 2011 and 400,000 bpd in 2012. That will help offset the depletion in regular crude production.

In a leap of blind faith the EIA expects OPEC's excess capacity to decline to 4.3 mbpd in 2012. That drew a hearty laugh from the peak oil community that believes the true excess capacity today is only 1.5 mbpd. It will be interesting to see how much oil they are actually pumping in 2012 with global demand up +3.0 mbpd from where it is today.

U.S. oil production grew by 150,000 bpd in 2012 to 5.51 mbpd and is expected to decline by 20,000 bpd in 2011 and -130,000 bpd in 2012. That comes from a decline of 50,000 bpd in Alaska and -220,000 in gulf production. Those declines will be offset by +250,000 bpd in increases from places like the Bakken, Eagle Ford Shale and shallow water Gulf. In 2012 production is expected to decline by 70,000 in the lower 48 states, -180,000 in the Gulf and -20,000 in Alaska.

The EIA updates these numbers monthly.

All the forecasting in the world will do us no good since we have no real clue aboutOPEC's excess production capacity. Until that is either known (never) or proven to be nonexistent (2012-2013) the monthly forecasts are hardly worth the paper they are printed on other than the estimates for the U.S. and OECD production.

Jim Brown

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