WASHINGTON (MNI) – The following is the first part of excerpts from
the Energy Information Administration’s February Short-Term Energy
Outlook published Tuesday:

Crude Oil and Liquid Fuels Overview.

EIA expects a continued tightening of world oil markets over the
next two years. World oil consumption grows by an annual average of 1.5
million barrels per day (bbl/d) through 2012 while the growth in supply
from non-Organization of the Petroleum Exporting Countries (non-OPEC)
countries averages about 0.3 million bbl/d this year and remains flat in
2012. Consequently, EIA expects the market will rely on both
inventories and significant increases in the production of crude oil and
non-crude liquids in OPEC member countries to meet world demand growth.
While on-shore commercial oil inventories in the Organization for
Economic Cooperation and Development (OECD) countries remained high last
year, floating oil storage fell sharply in 2010, and EIA expects that
OECD oil inventories will decline over the forecast period to close to
the middle of the previous 5-year range by the end of 2012.

There are many significant uncertainties that could push oil prices
higher or lower than current expectations. Among the uncertainties are
decisions by key OPEC member countries regarding their production
response to the global recovery in oil demand; the rate of economic
recovery, both domestically and globally; fiscal issues facing national
and sub-national governments; and China’s efforts to address concerns
regarding its growth and inflation rates. In addition, even though Egypt
is not a major supplier of crude oil or natural gas to world markets,
the recent unrest in that country raises the concern that unrest could
spread to other countries in the region with a larger role in supplying
world energy markets or that key transit routes for energy and other
goods could be disrupted.

Global Crude Oil and Liquid Fuels Consumption.

World crude oil and liquid fuels consumption grew by an estimated
2.4 million bbl/d in 2010, to 86.7 million bbl/d, the second largest
annual increase in at least 30 years. This growth more than offset the
losses of the previous two years and surpassed the 2007 level of 86.3
million bbl/d reached prior to the economic downturn. EIA expects that
world liquid fuels consumption will grow by 1.5 million bbl/d in 2011
and by an additional 1.6 million bbl/d in 2012. Non-OECD countries make
up almost all of the growth in consumption over the next 2 years, with
the largest contributions coming from China, Brazil, and the Middle
East. Among the OECD regions, EIA expects that only North America will
show oil consumption growth over the next 2 years, which will be offset
by continued declines in OECD Europe and Asia.

Non-OPEC Supply.

EIA projects non-OPEC crude oil and liquid fuels production will
increase by 310,000 bbl/d in 2011, then decline slightly in 2012.
Increases in non-OPEC oil production will be concentrated in a few
countries, particularly in China and Brazil, where EIA expects each to
show annual average production growth of 170,000 bbl/d in 2011. In 2012,
EIA expects Canadian production growth to average 170,000 bbl/d while
China and Brazil grow by 130,000 and 110,000 bbl/d, respectively. Other
non-OPEC production is expected to decline. EIA expects Mexico’s
production will fall by about 210,000 bbl/d in 2011, followed by a
further decline of 80,000 bbl/d in 2012. Similarly, production from the
North Sea falls by 220,000 bbl/d and 160,000 bbl/d in 2011 and 2012,
respectively. Projected U.S. crude oil production declines by 50,000
bbl/d in 2011 and by a further 190,000 bbl/d in 2012.

OPEC Supply.

Forecast OPEC crude oil production increases by 0.4 million bbl/d
in 2011, followed by a further increase of 1.2 million bbl/d in 2012.
These production increases are in response to the increase in global
demand for oil and limited growth in supplies originating in non-OPEC
countries. Non-crude liquids production is expected to increase by 0.7
and 0.4 million bbl/d in 2011 and 2012, respectively. EIA expects that
OPEC surplus production capacity will remain above 4 million bbl/d
during the next 2 years.

OECD Petroleum Inventories.

Onshore commercial oil inventories in the OECD countries remained
high last year, but reports indicate floating oil storage fell sharply.
Now that floating storage has been reduced, EIA expects that OECD
onshore inventories will decline over the forecast period. Projected
OECD stocks fall by about 55 million barrels in 2011, followed by an
additional 60 million barrel decline in 2012. Days-of-supply (total
inventories divided by average daily consumption) drops from 57 days to
55 days between December 2010 and the end of 2012, which is close to the
middle of the previous 5-year range.

Crude Oil Prices.

WTI crude oil spot prices averaged $89 per barrel in January, about
the same as the December average, while over the same time period the
estimated average cost of all crude oil to U.S. refineries increased by
about $1 per barrel. Growing volumes of Canadian crude oil imported
into the United States contributed to record-high storage levels at
Cushing, Oklahoma, and a price discount for WTI compared with similar
quality world crudes such as Brent crude oil. Projected WTI spot prices
rise to an average of $95 per barrel in December 2011 and continue to
increase to $99 per barrel by the fourth quarter of 2012.

Energy price forecasts are uncertain. WTI futures for April 2011
delivery over the 5-day period ending February 3 averaged $93 per
barrel, and implied volatility averaged 30 percent. This makes the lower
and upper limits of the 95-percent confidence interval $76 per barrel
and $114 per barrel, respectively, for WTI delivered in April 2011.
Last year at this time, WTI for April 2010 delivery averaged $75 per
barrel and implied volatility averaged 34 percent, with the limits of
the 95-percent confidence interval at $60 per barrel and $94 per barrel.
Based on WTI futures and options prices, the probability that the
monthly average price of WTI crude oil will exceed $100 per barrel in
December 2011 is about 44 percent. Conversely, the probability that the
monthly average December 2011 WTI price will fall below $85 per barrel
is about 32 percent.

U.S. Crude Oil and Liquid Fuels

U.S. Liquid Fuels Consumption.Total consumption of petroleum and
non-petroleum liquid fuels increased by 360,000 bbl/d (1.9 percent) to
19.1 million bbl/d in 2010. The major sources of this consumption growth
were distillate fuel oil (diesel fuel and heating oil), which grew by
140,000 bbl/d (3.8 percent), and motor gasoline, which increased by
60,000 bbl/d (0.6 percent). Projected total U.S. liquid fuels
consumption increases by 140,000 bbl/d (0.8 percent) in 2011 and a
further 170,000 bbl/d (0.9 percent), to 19.5 million bbl/d, in 2012.
Motor gasoline and distillate fuel account for much of the growth in
consumption.

U.S. Liquid Fuels Supply and Imports.Domestic crude oil production,
which increased by 150,000 bbl/d in 2010 to 5.51 million bbl/d, declines
by 50,000 bbl/d in 2011 and by a further 190,000 bbl/d in 2012 (U.S.
Crude Oil Production Chart). The 2011 forecast includes production
declines in Alaska of 60,000 bbl/d in 2011 and an additional decline of
20,000 bbl/d in 2012 because of the ongoing decline in production from
the maturing Alaskan oil fields. EIA expects production from the Federal
Gulf of Mexico (GOM) to fall by 250,000 bbl/d each year over the next 2
years. The production declines in Alaska and the GOM are partially
offset by projected increases in lower-48 non-GOM production of
250,000-bbl/d in 2011 and 80,000 bbl/d in 2012.

Liquid fuel net imports (including both crude oil and refined
products) fell from 57 percent of total U.S. consumption in 2008 to 49
percent in 2010, primarily because of the decline in consumption during
the recession, and rising domestic production. EIA forecasts that liquid
fuel net imports will average 9.6 million bbl/d in 2011 and 10.0 million
bbl/d in 2012, comprising 50 percent and 51 percent of total
consumption, respectively.

EIA expects slow growth in fuel ethanol production over the next 2
years. Ethanol production increases by a projected 50,000 bbl/d to
910,000 bbl/d in 2011 and then grows by an additional 10,000 bbl/d in
2012.

-more- (1 of 2)

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MI$OI$,MAUDS$]