EIA report sees demand rising in 2012 and 2013

Jan 15, 2012 12:00 AM

by Heather Scott

The tightening of world oil markets is expected to ease in 2012 but resume in 2013, with prices and demand continuing to rise, the US Energy Information Agency (EIA) said in its monthly Short-Term Energy Outlook, the first with predictions for 2013.
Acting EIA Administrator Howard Gruenspecht said most of the rising demand is being driven as in recent years by growth in 'non-OECD developing nations' such as China, where the economic outlook will be key, including 'demand for exports'.

But he told that it is too early to tell how a potential oil embargo against Iran might impact the market. 'There are so many factors' to take into consideration, he said, including 'how others would react' and if they would increase output to compensate for lost Iranian production.
"There is spare capacity in the world, some in OPEC."

The report projected the average price of West Texas Intermediate crude to jump to $ 100 a barrel this year, from $ 95 in 2011, and rise to $ 106 in 2013. The final 2011 average was $ 2 above the forecast from a year ago. Retail gasoline prices are expected to slip to an average of $ 3.48 a gallon from $ 3.53 last year, but rebound to $ 3.55 in 2013.
But the report cautions that 'Energy price forecasts are highly uncertain', and noted that 'implied volatility averaged 35 %' in the first five days of 2012, compared to 28 % a year ago. World oil markets will ease up a bit form last year, but not for long.

"Absent a significant oil supply disruption, EIA expects the recent tightening of world oil markets to moderate in 2012 and resume in 2013. World oil consumption grows by an annual average of 1.3 mm bpd in 2012 and 1.5 mm bpd in 2013," the report said.
"There are many significant uncertainties that could push oil prices higher or lower than projected. Should a significant oil supply disruption occur, OPEC members not increase production, or projected non-OPEC projects come online more slowly than expected, oil prices could be significantly higher. If the pace of global economic growth fails to accelerate in Organization for Economic Cooperation and Development (OECD) countries, or if economic growth slows in non-OECD countries, reduced demand could lower prices," EIA said.

EIA added it expects natural gas consumption to average 68.2 bn cfpd this year, an increase of 1.3 bn cfpd (2.0 %) from 2011. Consumption growth in 2013 is seen averaging 69.1 bn cfpd.
"Increases in the consumption of natural gas for power generation are likely to continue as domestic production continues to grow and natural gas remains a relatively inexpensive option for generators," the report said.

Given the unusually warm winter combined with production increases, EIA said, "Working natural gas inventories ended December at 3,472 bn cf, a record high for this time of year."
It added, "Inventory levels at the end of October 2012 and 2013 are expected to set new record highs at about 3,960 bn cf and 3,990 bn cf, respectively."

As for prices, the report said, "The current forecast for 2012 natural gas prices is significantly lower than at this time last year, as continued growth in production and a very warm start to the winter have contributed to record-high natural gas inventories."
The Henry Hub spot price is projected to average $ 3.53 per mm Btu in 2012 (compared to $ 4.02 forecast a year ago) and $ 4.14 in 2013. The final average Henry Hub spot price for 2011 was $ 4.00.

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