by
Ronald R. Cooke
April 7th, 2005 Release (Next Update: May
10th, 2005)
Short-Term Energy Outlook – April 2005
Here is the just released EIA (Energy Information Administration of the U. S. Department of Energy) report for April. There are no surprises. I predicted these oil price trends in 2003 and they are discussed in my book "Oil, Jihad and Destiny". My only regret is that oil prices are moving higher than I predicted, perhaps confirming Colin Campbell's assertion that my book is too optimistic.
Heaven help us if he is right. Oil, Jihad and Destiny predicts economic chaos with declining GDP, higher rates of inflation and growing unemployment.
I have added the EIA's Natural Gas discussion as a reference.
Gasoline prices in 2005 are projected to remain high, at an expected average of $2.28 per gallon for the April to September summer season, 38 cents above last summer. Similar high motor gasoline prices are expected through 2006. Monthly average prices are projected to peak at about $2.35 per gallon in May. Summer diesel fuel prices are expected to average $2.24 per gallon. As in 2004, the primary factor behind these price increases is crude oil costs. WTI, for example, is projected to average 37 cents per gallon higher than last summer. High world oil demand will continue to support crude oil prices and increase competition for gasoline imports. In the United States, additional changes in gasoline specifications and tight refinery capacity can be expected to increase operating costs slightly and limit supply flexibility, adding further pressure on pump prices. Motor gasoline demand is projected to reach an average of 9.3 million barrels per day this summer, up 1.8 percent from last summer. Despite high prices, demand is expected to continue to rise due to the increasing number of drivers and vehicles and increasing per-capita vehicle miles traveled
The average West Texas Intermediate (WTI) crude oil price for the first quarter of 2005 was $49.77 per barrel, approximately $14.50 per barrel higher than in the first quarter of 2004 and $1.10 per barrel above the first quarter 2005 projection in the previous Outlook. WTI prices are projected to remain above $50 per barrel for the rest of 2005 and 2006. Oil prices are likely to be sensitive to any incremental oil market tightness. Imbalances (real or perceived) in light product markets could cause light crude oil prices to increase to levels above the $55 per barrel average projected in the Outlook.
Several factors have contributed to the recent high crude oil prices and are likely to keep prices at or near present highs. First, worldwide petroleum demand growth is projected to remain robust, despite high oil prices, but is likely to moderate in response to slower Chinese growth, which exceeded 1 million barrels per day in 2004. Projections for 2005 and 2006 call for worldwide growth averaging 2.2 million barrels per day, or 2.6 percent, per year, down from the 3.4-percent growth in 2004. Chinese demand growth is projected to moderate to an average of 650 thousand barrels per day annually in 2005 and 2006. Second, expected growth in non-Organization of Petroleum Exporting Countries (OPEC) supplies is not expected to accommodate worldwide demand growth. Third, worldwide spare crude oil production capacity has recently diminished and is projected to remain low. Fourth, freight rates, although down from those in 2004, are projected to remain high in historical terms. Finally, geo-political risks, such as the continued insurgency in Iraq and political unrest in Nigeria and Venezuela, are expected to keep the uncertainty premium high.
High levels of production from members of the OPEC contributed to inventory builds in the Organization for Economic Cooperation and Development (OECD) countries from February through November 2004. Since then, OECD oil stocks have moved more toward the middle of the 5-year historical range. However, OECD stocks have not grown in terms of days-of-supply (the number of days that inventories would satisfy demand) because demand has grown rapidly as well. EIA’s outlook includes little growth in OECD commercial oil inventories over the next 2 years. U.S. crude oil inventories, now near the middle of the historical range, are much improved compared to this time last year. Some of this improvement is expected to dissipate over the forecast period.
On March 16, OPEC announced it would increase its production quota by 500,000 barrels per day and was prepared to approve an additional 500,000-barrel-per-day quota increase should oil prices remain at current levels. This quota increase was applied pro-rata to the quotas of each OPEC member. (In practice, only Saudi Arabia has any meaningful available spare production capacity.) EIA’s projections had already assumed prior to the announcement that OPEC production would increase to meet growing world oil demand. The current Outlook forecasts increases in OPEC production to meet increased world demand but our estimates for non-OPEC supply overall have not changed significantly since March. The forecast for U.S. petroleum supply has been adjusted downward slightly by about 0.1 million barrels per day each for the 2005 and 2006 yearly averages.
U.S. petroleum demand is projected to average 20.9 million barrels per day in 2005, up 1.7 percent from 2004. Jet fuel demand is up by 4.5 percent from 2004; motor gasoline use, accounting for almost half of total petroleum demand, is expected to increase by 1.6 percent this year. In 2006, U.S. petroleum demand is projected to increase by an additional 1.5 percent, as use of motor gasoline and other transportation fuels continues to increase.
On April 4, 2005, the U.S. average pump price for regular gasoline was $2.22 per gallon, up 6 cents from the previous week. Recently, both gasoline prices and diesel prices have been rising in response to high late winter crude oil prices and high rates of refinery utilization. Diesel prices have also responded to the relatively low level of distillate inventories. With the heating season over, however, there will be less distillate demand pressure on diesel prices. Despite relatively high absolute levels for gasoline inventories days’ supply (beginning inventories divided by demand per day) has generally not risen significantly since 2003 and is projected to stay below historical averages through 2006. In 2005, the pump price for regular unleaded motor gasoline is expected to average $2.17 per gallon and diesel fuel is expected to average $2.21 per gallon, both up considerably from 2004. Similarly high motor gasoline and diesel prices are expected through 2006. Sustained domestic growth in gasoline demand, both seasonal and year-over-year, is expected to increase average monthly gasoline prices to about $2.35 per gallon in May.
The Henry Hub natural gas spot price averaged over $7.00 per thousand cubic feet (mcf) in March, compared to $5.55 per mcf in March 2004. High crude oil prices, combined with the unusually cold March weather for much of the Nation, increased heating demand and boosted spot prices for natural gas to levels above $7.00. Although spot prices for natural gas may dip during the spring and summer, natural gas supply conditions are expected to remain tight over the same period. Although natural gas storage remains adequate, high world oil prices, a continued strong economy, and the expectation that below-normal Pacific Northwest hydroelectric resources will be well below normal through mid-summer are the principal reasons for the upward revision of the natural gas price projections from last month’s Outlook. Thus, Henry Hub prices are expected to remain relatively high, averaging about $6.95 per mcf this year and $6.90 in 2006.
Working gas in storage is estimated at 1,187 billion cubic feet at the end of March, a level 12 percent higher than one year ago and 14 percent higher than the 5-year average.
Natural gas demand is projected to increase by 1.7 percent in 2005. Domestic natural gas production in 2005 is expected to increase by only 0.7 percent from the 2004 level, despite an expected 8-percent increase in gas-directed drilling. In 2006, natural gas demand is projected to rise by 3.2 percent due largely to weather-related factors and continued strength in gas-intensive industrial production.
Author: Oil, Jihad and Destiny
Oil Jihad and Destiny provides an assessment of world oil production, characterizes the economic devastation of oil depletion and suggests solutions to the emerging energy crisis. Details of Oil, Jihad and Destiny may be found at Oil, Jihad and Destiny. It is available for purchase at BookSurge and Amazon.
