In the new Short Term Energy Outlook from the EIA, which was released on Tuesday, the EIA took a shot at predicting oil prices through 2011 and demand growth for all the major fuels.
The EIA produces a monthly Short Term Energy Outlook that touches on all the different fuels including oil, gas, coal and electricity. They attempt to look a year into the future every month. Because this is a rolling short term report there are not a lot of dramatic changes from month to month. Add 100,000 barrels in one area, subtract 50,000 somewhere else and the data becomes rather boring on a monthly basis but it does provide a checkpoint at any given time for what the "official" EIA forecast looks like. The monthly update is always good for some good headlines like "EIA expects oil demand to drop in 2010." Once the writers have you r attention they will try not to tell you that the EIA changed the demand expectations from 86.20 mbpd to 86.15 mbpd. It sounds better in a headline than the real numbers.
I pulled the main headlines from the EIA site in the interest of just focusing on the data I feel is important to us. If you have not glazed over by the end of this page there is a link to the full EIA STEO report.
Main Points of the EIA Short Term Energy Outlook
EIA expects the price of West Texas Intermediate (WTI) crude oil will average about $76 per barrel this winter (October-March). The forecast for the monthly average WTI price dips to $75 early next year then rises to $82 per barrel by December 2010, assuming U.S. and world economic conditions continue to improve. EIA's forecast assumes that U.S. real gross domestic product (GDP) grows by 1.9 percent in 2010 and world oil-consumption-weighted real GDP grows by 2.6 percent.
Rising crude oil prices contribute to an increase in the annual average regular-grade gasoline retail price from $2.35 per gallon in 2009 to $2.83 in 2010, as pump prices approach $3 per gallon during next year's driving season. Projected annual average diesel fuel retail prices are $2.46 and $2.96 per gallon, respectively, in 2009 and 2010. Average household expenditures on heating oil this winter are expected to increase to $1,911 from $1,864 last winter. Projected average household expenditures for propane of $1,700 this winter are almost 13 percent lower than last winter's $1,950.
The EIA expects the annual average natural gas Henry Hub spot price for 2010 to be $4.62 per thousand cubic feet (Mcf). This represents a $0.67-per-Mcf increase from the estimated 2009 price of $3.95 per Mcf. Natural gas working inventories reached a new record-high level of 3.837 trillion cubic feet (Tcf) on November 27 as mild weather throughout much of the country contributed to uncommon storage builds for most of that month. Projected average household expenditures on natural gas total $778 this winter, compared with $889 last winter.
Global Petroleum Overview. As 2009 draws to a close and the Organization of the Petroleum Exporting Countries (OPEC) prepares to meet again at the end of the month, it faces a global oil market that has firmed up in response to production cuts that began to take effect in January 2009. Although OPEC compliance with the cuts has weakened and global oil inventories remain very high by historical standards, WTI oil prices averaged $78 per barrel in November, continuing their generally upward trend since February. Expectations of a continued global economic turnaround have buttressed oil markets, and this Outlook assumes world oil-consumption-weighted real GDP grows by 2.6 percent in 2010, following a decline of 0.7 percent in 2009. EIA's expectation is that OPEC crude oil output in 2010 will hold at roughly fourth-quarter 2009 levels of under 30 million barrels per day.
Global Petroleum Consumption. EIA forecasts that world oil consumption will grow in 2010 by 1.1 million barrels per day (bpd) to 85.2 million bpd, down slightly from last month's Outlook. Countries outside of the Organization for Economic Cooperation and Development (OECD) are likely to account for almost all of this growth. Projected OECD oil consumption grows by only 0.1 million bbl/d in 2010, despite a projected 0.27 million bbl/d increase in the United States after a very weak 2009.
Non-OPEC Supply. The EIA expects non-OPEC oil production to average 50.3 million bbl/d in 2009, about 0.6 million bbl/d higher than year-earlier levels. Non-OPEC oil production increases have been largely the result of higher production from the United States, Brazil, and the Former Soviet Union (FSU). Oil production in Colombia has also been surprisingly strong. According to preliminary data, the country's crude oil output exceeded 0.7 million bbl/d in October for the first time since 2000. Projected non-OPEC supply growth slows to 0.2 million bbl/d in 2010, largely the result of lower growth in the United States and FSU.
OPEC Supply. OPEC crude oil production is expected to average 29.1 million bbl/d in 2009, down more than 2 million bbl/d from year-earlier levels. Projected OPEC crude oil production increases to an average of 29.6 million bbl/d in 2010, a response to an anticipated rebound in global oil demand. EIA expects OPEC non-crude petroleum liquids, which are not subject to OPEC production targets, to grow by 0.6 million bbl/d in 2010. OPEC is scheduled to meet in Angola on December 22 to reassess the market situation. Through the forecast period, OPEC surplus crude oil production capacity should remain in excess of 4 million bbl/d, versus an average of 2.8 million bbl/d seen over the 1998-2008 period.
OECD Petroleum Inventories. OECD commercial oil inventories stood at 2.77 billion barrels at the end of the third quarter of 2009, 115 million barrels more than the 5-year average. Inventories are projected to be at 58 days of forward cover at the end of 2009, 5 days above the 5-year average for that time of year. EIA expects OECD oil inventories to remain above average historical levels throughout the forecast period.
Crude Oil Prices. WTI crude oil spot prices averaged $78 per barrel in November, more than $2 per barrel above than the prior month's average. This increase reflected improving expectations of a global economic recovery and higher oil consumption offsetting concerns about the high current level of oil inventories. EIA forecasts that WTI spot prices will weaken over the next few months, falling to about $75 per barrel in February, and then rising to about $82 per barrel by the end of next year.
Crude oil prices were less volatile in November than during October. During November, the WTI spot price traded within a $5-per-barrel range, between roughly $75 and $80 per barrel. This contrasts with October, when the WTI spot price averaged just under $76 per barrel and traded in an $11-per-barrel range, between roughly $70 and $81 per barrel.
In the crude oil futures options market, WTI implied volatility trended lower over the second half of October and most of November 2009, following the downtrend in spot price volatility. Implied volatility from the February 2010 futures options contracts averaged 40 percent for the 5 days ending December 3, with the lower and upper limits of the 95-percent confidence interval for the February 2010 futures price at about $60 per barrel and $112 per barrel respectively (see Energy Price Volatility and Forecast Uncertainty). The February 2010 WTI futures contract averaged $78.43 per barrel for the 5 days ending December 3.
Last year at this time, market participants were pricing WTI crude oil in February 2009 at $50 per barrel, about $28 below the level currently trading for February 2010 delivery. The implied volatility last year for the February 2009 contract was double the current level, at 82 percent per year, with lower and upper limits of $29 and $84 per barrel, respectively, for the 95-percent confidence interval. The higher implied volatility reflected continued market uncertainty following a price collapse from all-time highs for the WTI futures of more than $145 per barrel in July 2008.
(For the rest of the EIA Short Term Energy Outlook release click here)