–Europe Debt Crisis, Possible Weak China Growth To Lower Oil Demand
–Now Sees Gasoline Prices Averaging $3.39/Gallon In Q3 2012
–WTI Price Projection For 2012,2013 Slashed, Brent Outlook Added

By Brai Odion-Esene

WASHINGTON (MNI) – The U.S. Energy Information Administration
Tuesday again lowered its expectations regarding the pace of global oil
consumption this year and in 2013, citing a “less optimistic” outlook
for world economic activity.

The agency also slashed its forecasts for the prices of U.S.
benchmark crude and regular retail gasoline in its July Short-Term
Energy Outlook, citing reflect shifts in expectations about oil market
balances “and the additional downside risks that are currently
dominating market sentiments.”

The report said the projected pace of global oil demand growth in
this month’s Outlook “reflects less optimistic assumptions about the
global economy.”

The forecast for global economic growth was lowered by 0.1 and 0.6
percentage points in 2012 and 2013, respectively, from last month’s
Outlook, and is now expected to average 2.9% in both years.

“The debt crisis in Europe and possible weak economic growth in
China will reduce world oil demand growth in the second half of this
year by 150,000 barrels a day to 850,000 barrels a day,” EIA
Administrator Adam Sieminski said in a statement accompanying the
report.

The report did not reflect the news early in the day that sent
prices down sharply, that the 16-day strike by Norwegian oil workers had
ended.

After growing by an estimated 0.8 million barrels per day to
average 87.9 million b/d in 2011, the EIA expects world liquid fuels
consumption to grow by 0.67 million barrels per day in 2012 to average
88.64 million b/d and by 0.73 million barrels to average 89.37 million
b/d in 2013.

In last month’s report, the expectation was for demand to grow by
of 0.8 million barrels per day and 1.09 million barrels per day,
respectively, in 2012 and 2013.

The EIA projected the spot price of West Texas Intermediate to
average about $93 per barrel in 2012, a downward revision of $4 per
barrel from the June report, and $89 per barrel in 2013, down from an
expectation of $97 in the previous report.

Also beginning this month, the EIA is providing a forecast of Brent
crude oil spot prices, and Sieminksi said this will better reflect
current oil market conditions.

“Since late 2010, Brent has become more representative of the
marginal cost of crude oil for the majority of refiners,” he said.

The EIA projects the price of Brent crude oil to average $106 per
barrel in 2012 and $98 per barrel in 2013.

The EIA report does cautions against focusing solely on downside
risks to oil demand and prices, as “oil prices could be higher than
projected in this Outlook if recoveries from supply disruptions are
slower than forecast, additional disruptions occur, or supply growth is
lower than expected.”

It also noted the European Union embargo and U.S. sanctions
targeting exports of Iranian crude oil, warning that despite the
market’s mild reaction to the sanction start dates, “upside price risks
still persist, particularly if negotiations with Iran fail to progress.”

As for gasoline, the EIA said the sharp decline in oil prices
should cause U.S. regular retail prices to average $3.39 during the
third quarter of 2012, down from its forecast of $3.51 per gallon last
month.

For the year as a whole, the EIA said it expects regular-grade
gasoline retail price to average $3.49 per gallon in 2012. It’s
projection last month was for gasoline prices to average $3.56 per
gallon this year.

It sees regular-grade gasoline prices declining to an average of
$3.28 per gallon in 2013, compared to last month’s estimate of $3.51.

On the supply side, the EIA report forecast non-OPEC production to
rise by 750,000 barrels per day in 2012 — down from last month’s
estimate of 800,000 barrels — and by a further 1.3 million b/d in 2013.

“The largest area of non-OPEC growth is North America, where
production increases by 880 thousand bbl/d and 540 thousand bbl/d in
2012 and 2013, respectively, resulting from continued production growth
from U.S. onshore shale and other tight oil formations and from Canadian
oil sands.” the EIA said.

The agency noted that for the U.S. alone, total oil production is
expected to average 6.3 million barrels per day in 2012, an increase of
0.6 million barrels from last year, and the highest level of production
since 1997. Projected U.S. domestic crude oil production increases to
6.7 million b/d in 2013.

With regard to supply from OPEC, the EIA said it expects the
influential group will continue to produce “about” 30 million barrels
per day over the next two years “to accommodate the projected increase
in world oil demand and to counterbalance supply disruptions.”

It projects that OPEC crude oil production increases by about 0.8
million barrels per day in 2012 and then falls by 0.9 million b/d in
2013 “as non-OPEC supply growth increases and stocks rise slightly.”

The EIA raised its projection regarding the decline in Iran’s oil
output, now forecasting a decline of about 1 million barrels per day
(vs. 850,000 in the June Outlook) and sees an additional 200,000 b/d
loss in 2013. The report, however, said this decline should be offset by
increased production in other OPEC member countries.

The EIA projects that OPEC surplus production capacity will average
2.4 million bbl/d in 2012 and rise to an average 3.6 million bbl/d in
2013.

As for natural gas, EIA expects natural gas consumption will
average 69.9 billion cubic feet per day in 2012, down from the 69.5 bcf
forecast last month. Growth in total natural gas consumption slows in
2013, with forecast demand averaging 71.1 Bcf/d.

The EIA said natural gas spot prices averaged $2.47 per MMBtu at
the Henry Hub in June 2012, up $0.04 per MMBtu from the May 2012
average.

EIA expects natural gas prices will average $2.58 per MMBtu in
2012, an upward revision from $2.55 per MMBtu expected in June’s
Outlook. EIA slightly lowered its forecast for 2013 to $3.22 per MMBtu
from $3.23 per MMBtu in last month’s report.

** MNI Washington Bureau: 202-371-2121 **

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