THIS WEEK IN PETROLEUM REPORT RELEASE – October 26, 2011

Brazil will be responsible for some of the world's largest increases in oil production in the coming decades.  Advances in seismic imaging have enabled the discovery of offshore "pre-salt" deposits of oil in Brazil's Campos and Santos Basins (Figure 1).  These pre-salt fields, so-called because they lie under massive layers of salt, are located 18,000 feet below the ocean floor under more than 6,000 feet of salt.  Brazil already produces 2.1 million barrels per day (bbl/d) of crude oil and lease condensate, yet just became a net exporter in 2008.  Pre-salt development, coupled with the ability to meet a large share of domestic demand with biofuels, is projected to transform the country into a major oil exporter.

Short-Term Energy Outlook October 12, 2011 Release

Highlights


 EIA projects average household heating expenditures for natural gas, propane, and heating oil will increase by 3 percent, 7 percent, and 8 percent, respectively, this winter (October 1 to March 31) compared with last winter, while electricity heating expenditures fall by less than 1 percent. Average expenditures for households that heat with oil are forecast to be higher than in any previous winter.

 This forecast reflects higher prices for natural gas, propane, and heating oil, and slightly milder weather than last winter in much of the Nation contributing to lower consumption in many areas (see EIA Short Term Energy and Winter Fuels Outlook slideshow).

 According to the National Oceanic and Atmospheric Administration’s (NOAA) most recent projection of heating degree-days, the lower-48 States are forecast to be 2 percent warmer during the October through March winter heating season compared with last winter. However, heating degree-day projections vary widely among regions, with the West projected to be about 3 percent colder than last winter, and the South projected to be about 5 percent warmer.

 Forecast U.S. real gross domestic product (GDP) grows by 1.5 percent this year and by 1.8 percent next year, slightly lower than in last month’s Outlook. World oil-consumption-weighted real GDP grows by 3.0 percent and 3.5 percent in 2011 and 2012, respectively, compared with 3.1 percent and 3.8 percent in the last Outlook. EIA expects the U.S. average refiner acquisition cost of crude oil to average $99 per barrel in 2011 and $98 per barrel in 2012, compared with $100 per barrel and $103 per barrel, respectively, in the previous Outlook.

 Natural gas working inventories ended September 2011 at 3.4 trillion cubic feet (Tcf), about 2.6 percent, or 91 billion cubic feet (Bcf), below the 2010 end-of-September level. EIA expects that working natural gas inventories will approach last year’s high levels by the end the injection season. The projected Henry Hub natural gas spot price averages $4.15 per million British thermal units (MMBtu) in 2011, $0.24 per MMBtu lower than the 2010 average. EIA expects the rate of growth in domestic natural gas production to slow in 2012, with the Henry Hub spot price averaging $4.32 per MMBtu.

Contact:

Tancred Lidderdale
tancred.lidderdale@eia.gov
phone: (202) 586-7321

Short-Term Energy Outlook

July 12, 2011 Release

Highlights

· World crude oil prices initially fell following the June 23 announcement by the International Energy Agency (IEA) that its member countries would release up to 60 million barrels from strategic reserves but then rose above the pre-announcement levels in late June and early July. Attributing observed price changes since June 23 to the IEA announcement is difficult because other drivers, including changing expectations of world economic and crude oil consumption growth, uncertainty over oil supply disruptions, estimates of OPEC spare production capacity, and other physical and financial factors are continually affecting oil prices. Although the IEA release will provide some additional supply, EIA expects oil markets to tighten through 2012. Given projected world oil demand growth and slowing growth in supply from countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC), the projected U.S. average refiner acquisition cost of crude oil rises from $102 per barrel in 2011 to $108 per barrel in 2012, about $1 per barrel below last month’s Outlook.

· The regular-grade gasoline monthly average retail price fell from $3.91 per gallon in May to $3.68 per gallon in June, reflecting the decline in crude oil prices from their April peak and a recovery from unexpected refinery outages and Mississippi River flooding. EIA expects regular-grade gasoline prices will average $3.62 per gallon and $3.51 per gallon over the third and fourth quarters of 2011, respectively.

· Natural gas working inventories ended June 2011 at 2.5 trillion cubic feet (Tcf), about 8 percent, or 214 billion cubic feet (Bcf), below the 2010 end-of-June level. EIA expects that working gas inventories will build strongly during the summer and approach record-high levels in the second half of 2011. The projected Henry Hub natural gas spot price averages $4.27 per million British thermal units (MMBtu) in 2011, $0.12 per MMBtu lower than the 2010 average. EIA expects the natural gas market to begin tightening in 2012, with the Henry Hub spot price increasing to an average of $4.54 per MMBtu.

http://www.eia.doe.gov/emeu/steo/pub/contents.html

Chinese Oil Demand 101: The Role of Electricity

Despite recent decreases in crude oil prices and concern over the pace of economic growth in Organisation for Economic Co-operation and Development (OECD) countries, supply and demand fundamentals underlying the oil market remain strong. Far from reducing their expectations of global oil demand growth for 2011, the U.S. Energy Information Administration's (EIA) Short-Term Energy Outlook and other forecasters have recently raised their demand projections. EIA is currently projecting global oil demand to average 88.4 million barrels per day (bbl/d) in 2011, 1.7 million bbl/d higher than in 2010. Of that increment, China alone is expected to account for some 700 thousand bbl/d. Why such strong growth, and why the upward revisions, given that most forecasters are becoming, if anything, slightly less optimistic about China's economy?

U.S. Oil Import Dependence: declining no matter how you measure it

U.S. oil import dependence is an issue perhaps as hotly debated as it is loosely defined. As discussed in a This Week in Petroleum article published in 2008, there is more than one way of measuring it. Different methods of calculation yield different results. But whichever way it is defined, U.S. dependence on imported oil has dramatically declined since peaking in 2005, continuing a trend that was beginning to emerge the last time This Week In Petroleum examined the issue. By the broadest measure, U.S. dependence on imported oil fell below the 50 percent mark last year for the first time since 1997. To put it succinctly, discrepancies in the way dependence is assessed arise because oil, for the most part, is imported as crude oil, but is consumed as refined products, of which crude oil is the main but not the only input - hence the need to clarify whether dependence is assessed at the output/consumption level or at the input level, and in the latter case what range of inputs is included as a basis for comparison. Two of the most common and straightforward definitions measure dependence as the ratio of total net oil imports (including crude and products) to total product consumption, or much more narrowly as the ratio of net imported crude oil to net crude oil inputs to refineries.

Short-Term Energy Outlook

May 10, 2011 Release

Highlights

West Texas Intermediate (WTI) crude oil spot prices averaged $89 per barrel in February, $103 per barrel in March, and $110 per barrel in April. During the first week of May WTI crude oil prices fell by nearly $17 per barrel to $97 per barrel, along with a broad set of commodities, and then rebounded by almost $6 per barrel yesterday. However, EIA still expects oil markets to continue tighten through 2012 given projected world oil demand growth and slowing growth in supply from countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC). Projected WTI spot prices average $103 per barrel in 2011 and $107 per barrel in 2012, reductions of about $4 and $6 per barrel respectively from last month’s Outlook.

Despite the moderate downward revision to the outlook for oil prices, the rise in crude oil prices from last year continues to imply higher petroleum product prices this year compared with last. EIA forecasts that the annual average regular-grade retail gasoline price will increase from $2.78 per gallon in 2010 to $3.63 per gallon 2011 and to $3.66 per gallon in 2012. The forecast regular-grade motor gasoline retail price averages $3.81 per gallon during this summer’s driving season (from April 1 through September 30), up from $2.76 per gallon last summer, but 5 cents per gallon lower than last month’s Outlook. The forecast U.S. monthly average regular gasoline price during the summer peaks in June at $3.88 per gallon. Prices of futures and options contracts for wholesale gasoline over the 5 days ending May 5 suggest a 41-percent probability that the national monthly average retail price for regular gasoline could exceed $4.00 per gallon during July 2011.

Natural gas working inventories ended April 2011 at 1.8 trillion cubic feet (Tcf), about 11 percent, or 230 billion cubic feet (Bcf), below the 2010 end-of-April level. EIA expects that working gas inventories will build strongly during the summer and approach record-high levels in the second half of 2011. The projected Henry Hub natural gas spot price averages $4.24 per million British thermal units (MMBtu) in 2011, $0.15 per MMBtu lower than the 2010 average. EIA expects the natural gas market to begin tightening in 2012, with the Henry Hub spot price increasing to an average of $4.65 per MMBtu.

To see details of this forecast update, go to the following World Wide Web site on the Internet:
http://www.eia.doe.gov/emeu/steo/pub/contents.html

Contact:
Tancred Lidderdale
tancred.lidderdale@eia.gov
phone: (202) 586-7321

or

Neil Gamson
neil.gamson@eia.gov
phone (202) 586-2418

Short Term Energy Outlook from EIA; April 12, 2011

• West Texas Intermediate (WTI) crude oil spot prices averaged $89 per barrel in February and $103 per barrel in March. The WTI price has continued to rise in recent days, reaching $112 on April 8. Crude oil prices are currently at their highest level since 2008. EIA expects oil markets to continue to tighten over the next two years given expected robust growth in world oil demand and slow growth in supply from non-Organization of the Petroleum Exporting Countries (non-OPEC) countries. These conditions result in an expected drawdown of global petroleum stocks and a call for increasing production from OPEC member countries, which will reduce surplus crude oil production capacity at a time when the disruption of crude oil exports from Libya and continuing unrest in other Middle East and North African (MENA) countries already highlight significant supply risks. Projected WTI prices average $106 in 2011 and $114 per barrel in 2012, increases of $5 per barrel and $9 per barrel, respectively, from last month's Outlook.

• The rise in crude oil prices is reflected in higher petroleum product prices. EIA projects that the retail price of regular-grade motor gasoline will average $3.86 per gallon during this summer’s driving season (the period between April 1 and September 30), up from $2.76 per gallon last summer. EIA forecasts the annual average regular retail gasoline price will increase from $2.78 per gallon in 2010 to $3.70 per gallon in 2011 and to $3.80 per gallon in 2012. Current market prices of futures and options contracts for gasoline suggest a 33-percent probability that the national monthly average retail price for regular gasoline could exceed $4.00 per gallon during July 2011.

• Natural gas working inventories ended March 2011 at 1.6 trillion cubic feet (Tcf), slightly below the 2010 end-of-March level. EIA expects that working gas inventories will remain relatively high throughout 2011. The projected Henry Hub natural gas spot price averages $4.10 per million Btu (MMBtu) in 2011, $0.29 per MMBtu lower than the 2010 average. EIA expects the natural gas market to begin to tighten in 2012, with the Henry Hub spot price increasing to an average of $4.55 per MMBtu.

The ABCs of crude supply disruptions

Released: March 2, 2011; by the US EIA, (Energy Information Association) 
Link to EIA page and this article

For the people of Libya, with life, death, and the future of their country in the balance, the price of oil probably doesn't rank as a top concern at present. However, recent price movements suggest that the oil markets are closely following events in Libya and elsewhere in North Africa and the Middle East. Oil prices have risen from the first signs of disquiet in Tunisia to the fall of Egyptian President Mubarak to the violence and power shift in Libya, which has significantly disrupted that country's field production and exports. Libya produced about 1.65 million barrels per day (bbl/d) of crude oil in 2010, or approximately 2 percent of global supply, while net exports (including all liquids) were roughly 1.5 million bbl/d. The incomplete information coming from Libya has not spared the oil sector, and the market grasp of the scope of disruption has been less than precise, with estimates of production declines in the middle of last week ranging from 500,000 to 700,000 bbl/d to a near total shutdown. But even an exact measurement of the crude oil, product, and natural gas shortfall in Libya would, at best, provide a partial sense of its significance. The market impact of such a supply disruption goes beyond volumetric loss and entails many different factors, which we begin to sort out below.

Crude volume versus crude quality
Although oil is generally seen as a fungible, in fact, crude comes in many different grades of varying qualities and product yields. Libya's importance to the oil market stems not only from its substantial production, but also from the light, sweet quality of its crude grades. Es Sider, its largest stream, has a slightly lower gravity than benchmark grades Brent and West Texas Intermediate (WTI), (meaning that it is a slightly heavier grade of crude) but a slightly lower sulfur content (meaning that it is sweeter). Another Libyan grade, Sirtica, is lighter than Brent and WTI. Light crudes are, generally speaking, the easiest to process and can be run by relatively "simple" refineries that may not be able to handle heavier or sourer substitutes. A loss of light, sweet crude volumes is, as a rule of thumb, more difficult to deal with than a loss of heavier and sourer ones. This is not only because the refineries that run light, sweet grades have limited feedstock flexibility, but also because most of the spare crude production capacity tends to be at the heavy, sour end of the barrel. Fortunately, current utilization rates for U.S. refineries suggest that there is a significant margin of spare capacity at "complex" refineries that could be used to process heavy, sour crude oil.

Market outlet and destination
Although the majority of Libya's oil output and most of its natural gas production goes to Europe, its crude market reach is wider, extending all the way to China. But the ultimate impact of any crude disruption goes beyond the immediate buyers of that specific oil. As buyers find substitute supplies for the disrupted oil, those replacement barrels, in turn, are diverted from their original use or destination, causing secondary impacts. Should it be prolonged, a disruption in Libyan exports could have a larger effect on U.S. oil supply sources than the relatively small volumes of Libyan crude actually imported into the United States would suggest. Unlike Libyan production, more than a third of Algeria's light, sweet crude (a possible substitute from fields relatively close to Libya's) is shipped to U.S. refiners, which sometimes use it as a blending stock to lighten heavier crude grades. Should those volumes find a stronger market in Europe, U.S. end-users would have to look for alternate supplies. Light, sweet Nigerian crude, which depending on market conditions can wind up in the United States, Europe or Asia, is another case in point. Global crude oil flows will tend to adjust to best match demand needs with available supply sources.

Short haul versus long haul
Location is another important factor affecting the impact of a disruption. The closer the fields where a disruption is occurring are to their market outlet, the more immediate the disruption's impact on oil inventories and prices is likely to be, unless an alternate supply source equally close to market can be found. In December 2002 and early 2003, a worker strike that curtailed Venezuelan production was immediately felt in the United States, a short-haul destination. Substitute imports from distant Saudi Arabia took weeks to arrive. The rerouting of supplies increased shipping distances, tying up tankers for longer voyages and further tightening a shipping market that had already been firming even before the event. In contrast, while there can be indirect effects on long haul markets from localized substitution, those long haul effects would be comparatively subdued.

Crude versus products
Another way in which a disruption in one market sends ripples through others is via the product markets. Much of the Libyan crude oil refined in Mediterranean refineries is re-exported as product after processing by export-oriented refineries. Italy is Libya's top crude oil customer, with Libyan crude oil accounting for roughly a quarter of Italy's total crude imports. But the volume of its refined product exports exceeded that of its Libyan crude imports. Should the disruption force Italian and other refiners to decrease their runs, a sustained disruption in Libyan exports could result in decreased Italian product exports to other markets, tightening product markets well beyond the Mediterranean basin. At this time, however, Italian refinery runs have not been visibly affected by the current disruption.

Market conditions
The impact of a supply disruption is greatly affected by underlying market conditions, such as supply and demand balances, commercial and strategic stock inventory levels, and spare production, transportation and refining capacity. In 1973, the Arab oil embargo had an acute market impact because demand had been growing steeply and the market was already tight even before the event. But in 1967, an earlier Arab oil embargo ended in failure because the market was much more slack. The current disruption is occurring against a context of relatively comfortable spare capacity. Oil inventory levels are generally high by historical standards. But they are not evenly distributed throughout the world and are markedly tighter in Europe, the primary market for Libyan crude, than in North America. The European Brent market had been tightening before the start of unrest. In contrast, spare capacity in both transportation and refining remains abundant, which makes it possible to carry substitute barrels at a relatively low cost over long haul routes and to process barrels of a lesser quality than Libyan crude.

Seasonality
Because demand and supply are both subject to seasonal cycles, the time of year of a supply disruption affects its impact. The current disruption is occurring in a relatively low-demand season. Should it be prolonged, it could conflict with a seasonal ramp up in refinery production ahead of the peak summer driving season. Crude maintenance in the North Sea and elsewhere is also relatively low in the first quarter.

Strategic reserves
Countries with strategic reserves of crude oil and/or petroleum products must decide whether or not to release them in response to a disruption. The decision is a complex one whose potential benefits must be weighed against costs that include a reduction in pressure on suppliers with spare capacity to increase output, and a lower amount of reserves available for use in the future. Most of Europe's strategic oil reserves are held in products at refinery sites. The United States also holds its strategic reserves in both light and heavy crudes which can meet a variety of market needs.

Transit corridors
A supply disruption does not necessarily come in the form of a loss at the wellhead, but can result from a transit blockage. Although Egypt is not a large exporting country, it is important to the oil markets as a transit corridor. Earlier this year, as unrest mounted in Egypt, the market grew concerned that oil traffic though the Suez Canal and the SUMED pipeline might be halted. A significant amount of internationally traded oil moves through a number of chokepoints, such as the Strait of Hormuz, the Strait of Aden, the Strait of Gibraltar, the Bosporus and the Malacca Strait, to name a few of the most well known, where it is vulnerable to bottleneck and transit risks. Unrest in Yemen might raise market worries about disruption in the Strait of Aden; although repeated attacks by Somali pirates have already taken a toll on local traffic, oil has continued to flow. In the past, Iran has occasionally raised the threat of retaliating by disrupting tanker traffic in the Persian Gulf if it came under attack. However, even during the Iran-Iraq war, oil continued to flow through Hormuz.

Domino effects
Unrest in one country can raise concerns about potential disruptions in another through a perceived risk of "contagion." Unrest and upheaval in economies that are non-critical to global oil supply might nevertheless rattle the markets by causing worries that they might spread to neighboring or politically- or culturally-related countries that may be of greater importance to energy market participants.

Market impact
Just as many factors may shape the market impact of a disruption, that impact may manifest itself through a variety of channels. Changes in prompt crude prices are just the most visible and immediate one. Other effects have to do with changes in the relative value of prompt oil supplies across the quality and grade spectrum, changes in the crack spread (the difference between crude prices and product prices) and in the time spreads, or shape of the futures curve. A loss of crude volumes with a high distillate yield will cause distillate prices, not just crude prices, to rise. A supply disruption can cause the price of prompt barrels to rise relative to that of barrels for later delivery - thus pushing the futures curve into backwardation, as opposed to contango (when futures prices are higher further into the future). Changes in the futures curve, in turn, carry implications for inventories and oil trade flows.

Retail gasoline and diesel prices surge
The U.S. average retail price of regular gasoline gained 19 cents versus last week, marking the second largest weekly increase since the EIA began tracking weekly retail price data in 1990. The only week posting a larger increase was in September 2005 when retail prices rose sharply due to Hurricane Katrina. At $3.38 per gallon, gasoline is now $0.68 per gallon higher than last year at this time. Prices in the Midwest jumped almost 23 cents, the biggest increase in the country. The Gulf Coast followed closely behind, with gasoline prices in the region gaining 22 cents on the week. The East Coast saw an increase of over 18 cents, while the West Coast gasoline price advanced 14 cents. The smallest increase this week was in the Rocky Mountain region, where the price rose 11 cents, making gasoline in the Rocky Mountains the lowest in the country at $3.18 per gallon. The most expensive gasoline among the major regions is on the West Coast, where the average retail price is $3.62 per gallon.

Diesel prices rose for the thirteenth consecutive week with the U.S. average retail price adding more than 14 cents to last week's price. At $3.72 per gallon, diesel is $0.86 per gallon higher than last year at this time. Diesel was up across the country, with the biggest increase coming on the West Coast where prices jumped 16 cents over last week. Diesel on the East Coast and Midwest increased more than 14 cents, in line with the national per gallon average increase. The Gulf Coast diesel price registered a gain of over 13 cents while the Rocky Mountains saw diesel increase an even 13 cents.

Residential heating oil prices increase sharply
Residential heating oil prices continued to rise during the period ending February 28, 2011. The average residential heating oil price increased to $3.76 per gallon, nearly a $0.14 per gallon over last week and $0.86 per gallon more than last year at this time. Wholesale heating oil prices increased by $0.21 per gallon last week, reaching a price shy of $3.05 per gallon. This is $0.93 per gallon higher than last year's price.

The average residential propane price increased by more than $0.04 per gallon to reach a price just under $2.86 per gallon. This was an increase of $0.18 per gallon compared to the $2.68 per gallon average from the same period last year. Wholesale propane prices jumped nearly $0.29 with the overall price at $1.69 per gallon. This was an increase of $0.34 per gallon compared to the March 1, 2010 price of $1.35 per gallon.

Propane stocks fall as heating season nears an end
Total U.S. inventories of propane declined 1.0 million barrels last week to end at 28.5 million as heating season in the U.S. winds down. The Midwest region had the largest stock draw of 1.3 million barrels of propane. The Rocky Mountain/West Coast region also had a draw of 0.1 million barrels. Meanwhile, the East Coast and Gulf Coast regions each added 0.2 million barrels of propane inventory. Propylene non-fuel use inventories represented 9.1 percent of total propane inventories.

Short Term Energy Outlook

Highlights

To see details of this forecast update, go to the following World Wide Web site on the Internet:  http://www.eia.doe.gov/emeu/steo/pub/contents.html
  

This edition of the Short-Term Energy Outlook is the first to include forecasts (monthly, quarterly and annual) through December 2012. 

• EIA expects the price of West Texas Intermediate (WTI) crude oil to average about $93 per barrel in 2011, $14 higher than the average price last year. For 2012, EIA expects WTI prices to continue to rise, with a forecast average price of $99 per barrel in the fourth quarter 2012. EIA's forecast assumes U.S. real gross domestic product (GDP) grows 2.2 percent in 2011 and 2.9 percent in 2012, while world real GDP (weighted by oil consumption) grows by 3.3 percent and 3.7 percent in 2011 and 2012, respectively.

• EIA expects regular-grade motor gasoline retail prices to average $3.17 per gallon this year, 39 cents per gallon higher than last year and $3.29 per gallon in 2012, with prices forecast to average about 5 cents per gallon higher in each year during the April through September peak driving season. There is regional variation in the forecast, with average expected prices on the West Coast about 25 cents per gallon above the national average during the April through September period. There is also significant uncertainty surrounding the forecast, with the current market prices of futures and options contracts for gasoline suggesting more than a 25 percent probability that the national average retail price for regular gasoline could exceed $3.50 per gallon in the June through September period in 2011 and an 8 to 10 percent probability that it could exceed $4.00 per gallon in August and September 2011.

• Natural gas working inventories ended 2010 at 3.1 trillion cubic feet (Tcf), about 1 percent below the 2009 record-setting end-of-December level. Inventories are expected to remain at or near record-high levels through most of 2011. The projected Henry Hub natural gas spot price averages $4.02 per million Btu (MMBtu) for 2011, $0.37 per MMBtu lower than the 2010 average. EIA expects the natural gas market to begin to tighten in 2012, with the Henry Hub spot price increasing to an average $4.50 per MMBtu. 

• EIA expects average household expenditures for space-heating fuels to total $990 this winter, about $22 higher than last year. EIA projects higher expenditures for heating oil and propane, flat expenditures for natural gas, but lower expenditures for electricity. A forecast of milder weather than last winter in the South and the West leads to lower fuel consumption in those areas. 

• EIA projects that U.S. carbon dioxide (CO2) emissions from fossil fuels, which increased by 3.8 percent in 2010, will decline by 0.6 percent in 2011. EIA expects that CO2 emissions will increase by 2.4 percent in 2012 as consumption grows for all the fossil fuels. Projected fossil-fuel CO2 emissions in 2012 remain below the levels seen in any year from 2000 through 2008.