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

* EIA expects the U.S. average refiner acquisition cost (RAC) of
crude oil to increase slightly over the next year, averaging about $101
per barrel in 2011 and $102 in 2012. West Texas Intermediate (WTI) crude
oil has been trading at a discount to RAC for most of 2011, contrary to
the traditional relationship. The forecast WTI price discount relative
to the RAC narrows from an average $11 per barrel in the third quarter
of 2011 to $3 per barrel by the fourth quarter of 2012, supported by the
recently announced reversal of the Seaway pipeline in 2012 (see This
Week in Petroleum, Nov. 30, 2011).

* The warm start to this heating season has lowered the forecast of
average household heating expenditures for heating fuels by about 3
percent from last month’s Outlook. Average household heating oil and
propane expenditures are now expected to increase by 8 percent and 5
percent, respectively, this winter (October 1 to March 31) compared with
last winter. In contrast, natural gas expenditures are projected to
decline by 3 percent while electricity expenditures are 2 percent lower
than last year’s levels.

* Monthly average regular-grade gasoline retail prices in November
2011 averaged $3.38 per gallon, 52 cents per gallon below their 2011
peak monthly average in May. EIA expects that gasoline pump prices will
remain at or below current levels until early spring 2012, when prices
begin their normal seasonal rise. Projected regular gasoline retail
prices average $3.45 per gallon in 2012.

* Natural gas working inventories ended November 2011 at a record
high for that date, about 1 percent above the same time last year. The
projected Henry Hub natural gas spot price averages $4.02 per million
British thermal units (MMBtu) in 2011, $0.37 per MMBtu lower than the
2010 average. EIA expects that Henry Hub spot prices will continue to
decline in 2012, averaging $3.70 per MMBtu, $0.43 per MMBtu lower than
in last month’s Outlook.

Global Crude Oil and Liquid Fuels

Crude Oil and Liquid Fuels Overview

Tension in the oil-producing regions of the Middle East and Africa
continues to exert upward pressure on oil prices. However, this pressure
has been offset by the restoration of Libyan oil output, which has thus
far exceeded our prior expectations. At the same time, downside demand
risks persist, stemming from fears about weakening global economic
growth and the contagion effects of the European Union’s debt crisis.

Given expected rates of global oil consumption growth driven by
emerging markets outside of the Organization for Economic Cooperation
and Development (OECD), a combination of increased oil output from
members of the Organization of the Petroleum Exporting Countries (OPEC)
or inventory withdrawals of about 200 thousand bbl/d will be needed in
2012 to supplement non-OPEC supply growth in order for the oil market to
balance at the prices projected in this Outlook.

Global Crude Oil and Liquid Fuels Consumption

This forecast assumes non-OECD oil-weighted real GDP increases by
4.9 percent and 5.2 percent in 2011 and 2012, respectively. Forecast
OECD oil-weighted GDP growth slows from 1.7 percent in 2011 to 1.5
percent in 2012. EIA expects that world crude oil and liquid fuels
consumption will grow from 87.1 million barrels per day (bbl/d) in 2010
to 88.1 million bbl/d in 2011 and 89.5 million bbl/d in 2012. China and
other emerging economies account for most of the projected crude oil and
liquid fuels consumption growth through 2012. OECD consumption is
projected to decline by 0.4 million bbl/d in 2011, and to remain
relatively flat in 2012.

Non-OPEC Supply

EIA projects that non-OPEC liquid fuels production will grow by 0.4
million bbl/d in 2011 and 1.2 million bbl/d in 2012 to an average of
53.3 million bbl/d next year. The largest source of expected growth in
non-OPEC liquids production over the forecast is the United States,
where production is projected to grow by 340 thousand bbl/d in 2011 and
240 thousand bbl/d in 2012 because of strong growth in on-shore tight
oil production. Canada, China, Colombia, and Kazakhstan are each
expected to increase production at an average annual rate of 100
thousand bbl/d or more. Brazilian total liquids production remains
relatively flat in 2011, as decreased ethanol output offsets modest
crude oil production gains. However, expanded Brazilian crude oil
offshore production drives an expected increase of nearly 190 thousand
bbl/d in 2012.

In contrast, EIA projects that Russian and Mexican annual average
production will decrease by 170 thousand bbl/d and 60 thousand bbl/d,
respectively, between 2011 and 2012. Regional turmoil, particularly in
Syria, Yemen, and Sudan introduces additional uncertainty into the
non-OPEC production Outlook.

OPEC Supply

While forecast OPEC non-crude liquids production, which is not
subject to production targets, is expected to increase by 0.4 million
bbl/d in both 2011 and 2012, EIA expects OPEC crude oil production to
remain largely unchanged in both years after having grown by 0.7 million
bbl/d in 2010. Libyan crude oil production, which began to recover in
September, increased from an average of 350 thousand bbl/d in October to
an estimated 550 thousand bbl/d in November. Given recent developments
in Libya’s oil sector, EIA now expects Libyan crude oil production to
rise to an average of 900 thousand bbl/d during the first quarter of
2012 and to 1.2 million bbl/d by the fourth quarter of 2012, compared
with pre-disruption output of 1.65 million bbl/d.

OPEC surplus crude oil production capacity falls from 3.4 million
bbl/d in the fourth quarter of 2010 to a projected 3.0 million bbl/d in
the fourth quarter of 2011, but then increases to 4.1 million bbl/d by
the first quarter of 2012, as Libyan production capacity comes back on
line.

OECD Petroleum Inventories

EIA expects that OECD commercial inventories will decline in 2011
and 2012. However, because of declining consumption, days of supply
(total inventories divided by average daily consumption) increases
slightly, from 56.9 days in the fourth quarter of 2011 to 57.3 days in
the fourth quarter of 2012.

Crude Oil Prices

EIA has revised the projected oil price paths upward from last
month’s Outlook, particularly for WTI. EIA expects that the average
refiner acquisition cost for crude oil (RAC) will average $102 per
barrel in 2012, slightly higher than the projection of $100 per barrel
in last month’s Outlook. EIA expects that the WTI price will average $98
per barrel in 2012, well above the $91 per barrel forecast in the
previous Outlook.

For most of the last 30 years, WTI traded at a premium over the
average RAC price. However, the recent growth in crude oil supply,
particularly from Canada and North Dakota, to the midcontinent region
where WTI is traded, has not yet been matched by increases in
transportation capacity out of the midcontinent. This transportation
bottleneck contributed to the large price discount this year for WTI
relative to other U.S. and world crude oils, which reached a record
price discount in the third quarter of 2011. The recent announcement of
the planned reversal of the Seaway pipeline, which will begin shipping
crude oil from Cushing, Oklahoma to the Gulf Coast in 2012 supports a
reduced WTI price discount relative to the RAC. WTI crude oil spot
prices increased from an average $86 per barrel in October 2011 to $97
per barrel in November 2011, an $11 per barrel increase, while the
estimated average RAC increased from $98 per barrel to $104 per barrel,
an increase of $6 per barrel. EIA expects that the WTI discount will
continue to narrow to $3 per barrel below RAC by the fourth quarter of
2012.

Energy price forecasts are highly uncertain. WTI futures for
February 2012 delivery during the 5-day period ending December 1, 2011
averaged $99 per barrel. Implied volatility averaged 39 percent,
establishing the lower and upper limits of a 95-percent confidence
interval for the market’s expectations of monthly average WTI prices in
February 2012 of $76 per barrel and $129 per barrel, respectively. Last
year at this time, WTI for February 2011 delivery averaged $86 per
barrel and implied volatility averaged 30 percent. The corresponding
lower and upper limits of the 95-percent confidence interval were $70
per barrel and $106per barrel.

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

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