EIA's short-term outlook shows oil demand could outpace supply

| August 15, 2011

The U.S. Energy Information Administration has released its short-term energy outlook for the U.S., stating that the recent findings and assumptions expressed in the outlook “do not fully reflect recent economic and financial developments that point towards a weaker economic outlook.” The findings of the report highlighted three aspects of the country’s short-term energy patterns.

First, the EIA said it expects average refiner acquisition cost of crude oil to rise from $100 per barrel in 2011 to $107 per barrel in 2012, based on continuing decline of global inventories and global spare production. “There is a significant downside risk for oil prices if economic and financial market concerns become more widespread or take hold,” the EIA pointed out.

The second highlight the EIA specifically touched on in its report related to regular –grade gasoline. The monthly average retail price actually fell from $3.91 in May, according to the EIA, to $3.65 in July. The price drop was a reflection of the decrease in crude oil prices from their April peak and from the unexpected recovery of refinery outages, according to the EIA. For the third and fourth quarters of 2011, the EIA expects average gasoline prices to total $3.58 and $3.44 respectively, roughly 6 cents below last month’s outlook.

And lastly, the EIA pointed out the effect of extremely hot weather that blanketed most of the country in the month of July. The heat caused an increase in natural gas consumption used for electricity generation when compared to the same period a year ago. The EIA said it believes the natural gas market will “begin tightening” in 2012 as the spot price per MMBtu increases to an average of $4.41, 17 cents higher than the current spot price for natural gas.

On the topic of crude oil and liquid fuels, the EIA stated that global oil demand growth, led by China, “is expected to outpace the growth in supplies from countries outside of the Organization of the Petroleum Exporting Countries,” leading the markets to rely on both a drawdown of inventories and production increases in OPEC countries, the EIA added, “to close the gap.”

For 2010, world crude oil and liquid fuels consumption reached 86.8 million barrels per day, according to the outlook, a record high. The increase is not expected to diminish either, as the EIA predicts in 2011 the consumption numbers will raise another 1.4 million barrels per day and another 1.6 million barrels per day by 2012. From 1998-2007, average global demand growth was at 1.3 million barrels per day.

In the U.S., commercial inventories decreased to roughly 354 million barrels for the month of June, a number that is 3 million barrels lower than the previous year, but according to the administration, “still 21 million barrels higher than the previous five-year average for that month.” After releasing 31 million barrels of crude oil from the U.S. Strategic Petroleum Reserve, commercial crude oil stocks for September are expected to reach 369 million barrels, 40 million barrels higher than the previous five-year average.