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

Crude Oil and Liquid Fuels Overview.

EIA expects a continued tightening of world oil markets over the
next 2 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 less than 0.1 million bbl/d each year. Consequently,
EIA expects the market will rely on both inventories and significant
increases in 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 OECD oil inventories will
decline over the forecast period.

There are many significant uncertainties that could push oil prices
higher or lower than expected. Should OPEC not increase production as
global consumption recovers, oil prices could be significantly higher
than the central forecast. The rate of economic recovery, both
domestically and globally, also remains uncertain due to a variety of
factors including fiscal issues facing national and sub-national
governments, China’s efforts to address concerns regarding its growth
and inflation rates, and unforeseen production issues.

Global Crude Oil and Liquid Fuels Consumption.

World oil consumption grew by an estimated 2.2 million bbl/d in
2010, to 86.6 million bbl/d. This growth more than offset the losses of
the previous 2 years and surpassed the 2007 level of 86.3 million bbl/d
reached prior to the economic downturn. EIA expects average global
consumption growth over the next 2 years to return to rates seen before
the onset of the global downturn in 2008. Forecast global consumption
growth averages 1.4 million bbl/d in 2011 and 1.6 million bbl/d in 2012,
compared with an average of 1.3 million bbl/d per year from 2000 through
2007. From 2000 through 2007 the non-OECD countries as a group accounted
for about three-fourths of total world consumption growth. The non-OECD
countries are expected to account for all of the world’s growth over the
next 2 years, with the largest contributions coming from China, the
Middle East, and Brazil. Among the OECD regions, EIA expects that only
North America will show oil consumption growth over the next 2 years,
but it will be offset by continued declines in OECD Europe and Asia.

Non-OPEC Supply.

EIA expects non-OPEC crude oil and liquid fuels production to rise
by 160,000 bbl/d in 2011 and a further 20,000 bbl/d in 2012. Increases
in non-OPEC oil production will be concentrated in a few countries,
particularly in China, Brazil, and Canada, where EIA expects each to
show annual average production growth of 120,000 to 150,000 bbl/d in
2011 and 2012. Ghana became a new non-OPEC oil producer with the startup
of the Jubilee field in December of 2010. Other non-OPEC production is
expected to decline. EIA expects Mexico’s production will fall by about
200,000 bbl/d in 2011, followed by another production decline of 80,000
bbl/d in 2012. Similarly, the United Kingdom is expected to see
production declines of an average 120,000 bbl/d in both 2011 and 2012
since oil production and the discovery of new reserves have not kept
pace with the maturation of existing fields.

OPEC Supply.

OPEC is not scheduled to meet again until June 2011 to discuss its
production targets. Nonetheless, EIA expects that OPEC members’ crude
oil production will continue to rise over the next 2 years to
accommodate increasing world oil consumption, especially with non-OPEC
supplies expected to show limited growth. Projected OPEC crude oil
production increases by 0.5 and 1.1 million bbl/d in 2011 and 2012,
respectively. OPEC non-crude petroleum liquids, which are not subject to
production targets, increase by 0.7 million bbl/d in 2011 and by 0.4
million bbl/d in 2012. EIA expects OPEC surplus production capacity will
fall from about 4.7 million bbl/d at the end of 2010 to 4.3 million
bbl/d at the end of 2012.

OECD Petroleum Inventories.

EIA estimates commercial oil inventories held in the OECD ended
2010 at 2.71 billion barrels, equivalent to about 58 days of
forward-cover, and roughly 75 million barrels more than the 5-year
average for the corresponding time of year. Projected OECD oil
inventories decline over the forecast with days of forward-cover falling
from current high levels to closer to the 5-year average by the end of
2012.

Crude Oil Prices.

WTI crude oil spot prices averaged over $89 per barrel in December,
about $5 per barrel higher than the November average, as expectations of
higher oil demand, combined with unusually cold weather in both Europe
and the U.S. Northeast, lifted prices. EIA has raised the first-quarter
2011 WTI spot price forecast by over $7 per barrel from the last month’s
Outlook, to about $92 per barrel. WTI spot prices rise to an average
$99 per barrel in the fourth quarter of 2012. Projected WTI spot prices
average $93 per barrel in 2011 and $98 per barrel in 2012.

Energy price forecasts are uncertain. WTI futures for March 2011
delivery for the 5-day period ending January 6 averaged $91 per barrel,
and implied volatility averaged 28 percent. This makes the lower and
upper limits of the 95-percent confidence interval $76 per barrel and
$109 per barrel, respectively, for WTI delivered in March 2011. Last
year at this time, WTI for March 2010 delivery averaged $82 per barrel
and implied volatility averaged 40 percent, with the limits of the
95-percent confidence interval at $66 per barrel and $102 per barrel.
Based on futures and options prices over the first week in January, the
probability that the monthly average price of WTI crude oil will exceed
$100 per barrel in December 2011 is about 36 percent. Conversely, the
probability that the monthly average December 2011 WTI price will fall
below $80 per barrel is about 31 percent.

U.S. Crude Oil and Liquid Fuels

U.S. Liquid Fuels Consumption.

Preliminary data indicate that total consumption of petroleum and
non-petroleum liquid fuels increased by 350,000 bbl/d (1.9 percent) in
2010. The major sources of consumption growth were distillate fuel oil
(diesel fuel and heating oil), which grew by 130,000 bbl/d (3.7
percent), and motor gasoline, which increased by 60,000 bbl/d (0.7
percent). Reflecting the ongoing economic recovery, projected total U.S.
liquid fuels consumption in 2011 increases by 160,000 bbl/d (0.8
percent) in 2011 and a further 170,000 bbl/d (0.9 percent), to 19.4
million bbl/d, in 2012. Motor gasoline and distillate fuel account for
much of the growth in consumption over the next 2 years.

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 20,000 bbl/d in 2011 and by a
further 130,000 bbl/d in 2012. The 2011 forecast includes declines of
50,000 bbl/d in Alaska and 220,000 bbl/d in Federal Gulf of Mexico (GOM)
production, which are almost offset by a projected 250,000-bbl/d
increase in lower-48 non-GOM production. In 2012, lower-48 non-GOM
output increases by 70,000 bbl/d, Alaskan production declines by 20,000
bbl/d, and GOM output decreases by 180,000 bbl/d.

Liquid fuel net imports (including both crude oil and refined
products) fell from 57 percent of total U.S. consumption in 2008 to 49.4
percent in 2010, primarily because of the decline in consumption during
the recession and rising exports. EIA forecasts that liquid fuel net
imports will average 9.6 million bbl/d in 2011 and 9.9 million bbl/d in
2012, about 50 percent and 51 percent of total consumption,
respectively.

EIA expects slow growth in fuel ethanol production over the next 2
years. EIA projects that ethanol production will increase by 6 percent
(50,000 bbl/d) in 2011, reflecting the startup of several new plants and
the restart of some plants that were idled during the recession. EIA
projects that ethanol production growth will slow to 1 percent in 2012.
Forecast ethanol blending into gasoline exceeds the conventional
biofuels component of the Renewable Fuels Standard (RFS) in both 2011
and 2012.

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

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