EIA forecasts decline for US oil demand this year

Despite continued concerns over the pace of the global economic recovery, particularly in developed countries, the US Energy Information Administration expects worldwide oil consumption to increase this year and next spurred by demand in developing countries. US oil consumption, however, is forecast to contract from a year ago.

Worldwide oil demand, led by China, will increase by 1.4 million b/d in 2011 to average 88.19 million b/d and by 1.6 million b/d in 2012, outpacing average global demand growth of 1.3 million b/d from 1998-2007, before the onset of the global economic downturn, EIA said in its latest Short-Term Energy Outlook.

The forecast assumes global economic growth of 3.4% this year and 4.1% next year, but EIA says that these assumptions do not fully reflect recent economic and financial developments that point towards a weaker economic outlook.

EIA forecasts that commercial oil inventories among members of the Organization for Economic Cooperation and Development will decline in both 2011 and 2012. The number of days of supply will fall to 56 days in this year’s fourth quarter and to 55 days in fourth-quarter 2012 from a relatively high 58 days during fourth-quarter 2010.

EIA expects oil markets to tighten as rising liquid fuels demand in emerging economies continues to outpace supply growth outside the Organization of Petroleum Exporting Countries, with continuing upward pressure on oil prices. EIA expects that West Texas Intermediate crude oil spot prices will average $96/bbl in 2011 and $101/bbl in 2012, up from an average of $79/bbl in 2010.

Meanwhile the US refiner oil acquisition cost is forecast to average $100/bbl in 2011 and $107/bbl in 2012, as global spare production capacity and inventories decline.

Oil production

EIA projects that non-OPEC oil and liquid fuels production will increase by an average of 650,000 b/d in 2011 and 2012.

The greatest increases in non-OPEC oil production during 2011 and 2012 will occur in Brazil, Canada, China, Columbia, Kazakhstan, and the US, with annual average growth in each country exceeding 100,000 b/d. At the same time, EIA expects production declines of 140,000 b/d this year in both Yemen, stemming from ongoing strife there, and in the North Sea region, particularly in the UK.

OPEC oil production will decline by about 250,000 b/d in 2011, in large part due to the supply disruption in Libya, EIA forecasts. This is unchanged from last month’s outlook and assumes that about one half of Libya's predisruption production will resume by the end of next year, contributing to an overall increase in OPEC production of 500,000 b/d in 2012.

OPEC natural gas liquids production, which is not subject to production targets, is expected to increase by 520,000 b/d in 2011 and by 410,000 b/d in 2012.

EIA projects that OPEC’s spare oil production capacity will decline to 3.5 million b/d at yearend, from 4 million b/d a year earlier, followed by a further decline to 3.3 million b/d by yearend 2012.

US oil demand, inventories

Annual US oil demand in 2011 will average 19.03 million b/d, a 150,000 b/d decline from last year, EIA forecasts. This is a reversal of the 30,000 b/d increase projected in last month’s EIA outlook. Motor gasoline and distillate fuel each will account for about one‐fourth of the change.

During 2010, US liquid fuels consumption climbed by 410,000 b/d, the highest rate of growth since 2004.

EIA expects total US liquid fuels consumption to rebound and increase by 170,000 b/d to 19.2 million b/d in 2012, with motor gasoline consumption rising by 50,000 b/d and distillate fuel consumption increasing by 70,000 b/d, as economic growth improves and retail liquid fuels prices post only small increases from this year.

The annual average regular‐grade gasoline retail price will increase to $3.53/gal in 2011 and to $3.64/gal in 2012 from $2.78/gal in 2010 due to higher oil prices, EIA forecasts.

US crude oil production, which climbed by 110,000 b/d in 2010 to 5.5 million b/d, will increase by 100,000 b/d this year and by 80,000 b/d in 2012, driven by output from increased oil‐directed drilling activity in unconventional shale formations, EIA forecasts.

Commercial oil inventory levels ended July at an estimated 354 million bbl, down by 3 million bbl from last year but still 21 million bbl higher than the previous 5-year average for that month, EIA reported.

Following the release of about 31 million bbl of oil from the US Strategic Petroleum Reserve, commercial oil stocks are expected to rise to about 369 million bbl by the end of September, about 40 million bbl higher than the previous 5-year average. EIA also forecasts that crude oil stocks gradually will be drawn down to near their 5-year averages by the end of 2012.

In contrast, refined product inventories have moved closer to their 5-year averages since the beginning of this year and are expected to remain so through next year, EIA said.

US natural gas outlook

EIA expects US gas consumption to grow by 1.8% to 67.4 bcfd in 2011, as industrial and electric power consumption growth make up most of the increase.

US gas demand will increase slightly next year to 67.8 bcfd, EIA forecasts, as growth by industrial and electric power users offsets projected declines in residential and commercial consumption due to anticipated warmer winter weather.

The outlook calls for US marketed gas production to average 65.5 bcfd in 2011, up 5.9% from 2010. This growth is centered in the onshore production in the Lower-48 states, which more than offsets projected declines in the Gulf of Mexico. EIA expects production will continue to grow in 2012, but at a slower pace, increasing by 0.9% to average 66.1 bcfd.

EIA expects that the Henry Hub gas price will average $4.24/MMbtu in 2011 and $4.41/MMbtu in 2012, reflecting some tightening in supply as US production growth slows.