Text: US EIA Expects Slight Rise In Oil Price With Recovery

–World Oil Demand Forecast Similar To Previous Report

WASHINGTON (MNI) – The following are excerpts from the Energy
Information Administration’s short-term energy outlook released Tuesday,
in which it projects world oil demand to grow by 1.5 million barrels per
day in 2010 and says it expects the price of oil to firm and increase
slightly in respone to the global recovery:

Crude Oil and Liquid Fuels Overview. EIA’s assessment of world oil
markets is largely unchanged from last month’s Outlook, and world oil
prices will likely continue to firm and increase slightly in response to
the global economic recovery. As long as the global economy continues
to recover, and the Organization of the Petroleum Exporting Countries
(OPEC) remains satisfied with its constrained supply targets, global oil
markets should remain in this situation. Major uncertainties include
the pace of global economic recovery and the extent to which the largest
economies continue their stimulus and other economic policies.

Global Crude Oil and Liquid Fuels Consumption EIA projects that
world oil consumption will grow by 1.5 million barrels per day (bbl/d)
in 2010 and 1.6 million bbl/d in 2011, similar to the forecast of last
month. This growth is the result of an expected recovery in the global
economy, with world gross domestic product (GDP, on an oil-weighted
basis) assumed to rise by more than 3 percent per year. EIA has revised
its assessment for Asia upwards and Europe downwards for 2010 in
response to preliminary first-quarter data for those regions. Most of
the growth in oil consumption is expected in the Asia-Pacific and Middle
East regions (World Liquid Fuels Consumption Chart).

Non-OPEC Supply. Non-OPEC supply is projected to increase by
600,000 bbl/d in 2010, about 50,000 bbl/d more than last month’s
Outlook, because of a revised forecast for production in North America.
Non-OPEC supplies are then expected to fall slightly in 2011, as
declining production in mature areas more than offsets any new
production growth. The largest source of growth in 2010 is the United
States, followed by Brazil, Azerbaijan, and Kazakhstan. Offsetting this
projected supply growth in 2010 are further declines in mature fields in
Mexico, the United Kingdom, and Norway.

OPEC Supply. OPEC left its production policy unchanged at its last
meeting in Vienna on March 17, 2010, and is not scheduled to meet again
until October 14 to review its crude oil production targets. EIA
projects that OPEC production of crude oil will increase by 0.3 million
bbl/d in 2010, primarily in Angola and Nigeria. However, OPEC
production of non-crude petroleum liquids, which are not subject to OPEC
production targets, are expected to increase by 0.6 million bbl/d in
2010 and 0.7 million bbl/d in 2011. Overall, EIA also projects a slight
increase in OPEC surplus crude oil production capacity through 2011 from
first-quarter 2010 levels (OPEC Surplus Crude Oil Production Capacity
Chart).

OECD Petroleum Inventories. EIA estimates that commercial oil
inventories held in the Organization for Economic Cooperation and
Development (OECD) countries stood at 2.67 billion barrels at the end of
the first quarter of 2010. This level is equivalent to about 58 days of
forward cover, and is about 69 million barrels more than the previous
5-year average for the corresponding time of year (Days of Supply of
OECD Commercial Stocks Chart). Although OECD oil inventories are still
projected to remain at the upper end of the historical range over the
forecast period, they are falling as a result of higher oil consumption
and OPEC production restraint.

Crude Oil Prices. WTI crude oil spot prices averaged $81 per
barrel in March 2010, almost $5 per barrel above the prior month’s
average and $3 per barrel higher than forecast in last month’s Outlook.
Oil prices rose from a low this year of $71.15 per barrel on February 5
to $80 per barrel by the end of February, generally on news of robust
economic and energy demand growth in non-OECD Asia and the Middle East,
and held near $81 until rising to $85 at the start of April. EIA
expects WTI prices to average above $81 per barrel this summer, slightly
less that $81 for 2010 as a whole, and $85 per barrel by the fourth
quarter 2011 (West Texas Intermediate Crude Oil Price Chart). As
always, these energy price forecasts are highly uncertain, as both
recent experience and the sizable participation in near-term futures
options contracts (with a wide range of strike prices) clearly
demonstrate that prices can move within a wide range in a relatively
short period.

—

Additional Highlights

* EIA’s projections for West Texas Intermediate (WTI) crude oil
spot prices have changed very little over the last five Outlooks even as
spot crude oil prices continue to fluctuate on a daily basis. EIA
expects WTI prices to average above $81 per barrel this summer, slightly
less than $81 per barrel for 2010 as a whole, and $85 per barrel by the
fourth quarter of 2011.

* EIA forecasts that regular-grade motor gasoline retail prices
will average $2.92 per gallon during this summer’s driving season (the
period between April 1 and September 30), up from $2.44 per gallon last
summer. The forecast has the annual average regular grade retail
gasoline price increasing from $2.35 per gallon in 2009 to $2.84 in 2010
and to $2.96 in 2011, primarily because of projected rising crude oil
prices. Average U.S. pump prices for regular gasoline are likely to
exceed $3 per gallon at times during the driving season, and already
exceed $3 per gallon in some areas. Projected annual average retail
diesel fuel prices are forecast at $2.95 and $3.12 per gallon in 2010
and 2011, respectively.

* EIA expects the Henry Hub natural gas spot price to average $4.44
per million Btu (MMBtu) this year, a $0.49-per-MMBtu increase over the
2009 average, but a significant downward revision from the $5.17 per
MMBtu projected in last month’s Outlook. The price outlook is lower
primarily because of an average 2 billion cubic feet per day (Bcf/d)
upward revision to the 2010 domestic natural gas production forecast.

* The annual average residential electricity price changes only
slightly over the forecast period, averaging 11.5 cents per kilowatthour
(kWh) in both 2009 and 2010 and then rising to 11.7 cents per kWh in
2011.

* Estimated carbon dioxide (CO2) emissions from fossil fuels, which
declined by 6.6 percent in 2009, increase by 2.1 percent and 1.1 percent
in 2010 and 2011, respectively, as economic growth fuels higher energy
consumption.

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

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