EIA Forecasts Continued High Crude Oil Prices

Energy Information Administration ^ | June 2005 | Energy Information Administration

[rockthecasbah]

Energy Information Administration Short-Term Energy Outlook – June 2005

Monthly average WTI prices are projected to remain above $50 per barrel for the rest of 2005 and 2006. Several factors are contributing to the expectation of continued high crude oil prices. First, worldwide petroleum demand growth is projected to remain robust during 2005 and 2006, although not as strong as in 2004, despite high projected oil prices. Worldwide oil demand is projected to grow at an annual average of 2.1 million barrels per day in 2005 and 2006, representing a 2.5-percent annual average growth rate compared with 3.2 percent growth in 2004. Chinese demand growth, which averaged about 1 million barrels per day in 2004, is projected to be slower but still robust at an annual average of 600,000 barrels per day in 2005 and 2006 (this is a slight downward revision from the previous Outlook). Second, expected growth in non-OPEC supplies is not expected to accommodate worldwide demand growth. Non-OPEC supply is projected to grow by an annual average of 0.8 million barrels per day during 2005 and 2006, below annual average growth in the 2002 through 2004 period. Third, worldwide spare crude oil production capacity has recently diminished; in practice, only Saudi Arabia has any available spare production capacity. Despite expected capacity additions in Saudi Arabia and other Persian Gulf countries in 2005 and 2006, spare capacity is not projected to grow significantly over the next 2 years. Fourth, downstream sectors, such as refining and shipping, are expected to remain tight. Finally, geo-political risks, such as the continued insurgency in Iraq, are expected to keep the level of uncertainty in world oil markets high.

The Henry Hub natural gas spot price, which had averaged over $7.30 per thousand cubic feet (mcf) in April 2005, fell to $6.66 per mcf in May as weather in the Midwest and East moderated and crude oil prices eased. The natural gas market is likely to tighten over the next few months as summer cooling demand picks up. Prices are projected to continue to increase as the winter heating season boosts natural gas demand. Monthly average spot prices are likely to reach to $7.50 per mcf by the end of the year. Although natural gas storage remains above the 5-year average, high world oil prices, continued strength in the economy, the expectation that Pacific Northwest hydroelectric resources will be well below normal through mid-summer, and limited prospects for growth in domestic natural gas production all support the natural gas price projections. Henry Hub prices are expected to post averages of about $6.90 per mcf in 2005 and just over $7.10 per mcf in 2006.

[alloysteel]

Not"continued high prices", but even HIGHER prices.

Which in itself, is not a bad thing. There is a biomass conversion available, that changes organic waste materials directly into petroleum. There is also extraction of petroleum from oil shale, coal gasification with reforming techniques, mining of Methane Hydrate from the ocean depths, and new-technology atomic power generation plants, which reclaim and re-use so-called "spent" fuel rods to continue producing energy.

The only thing standing in the way of widespread adoption of these fuel generation and recovery methods is the possibility that petroleum will FALL in price. Eventually this option has to be used up, as petroleum is bleeding out of the earth's strata at a lower rate than was perhaps the case 150 years ago, when the resources were first beginning to be tapped.

Petroleum is being constantly regenerated, you know. Part of the broad cycle of storing and releasing energy that has been going on since the dawn of time in the universe.

[rockthecasbah]

The economy appears to have adjusted to $50 crude. Demand is up compared one year ago while crude averaged north of $40 for the last twelve months. My question is, how much higher does crude have to go before we see demand erosion?