In its short-term energy outlook, the Energy Information Administration (EIA) projects that the West Texas Intermediate (WTI) spot price will average $77/barrel in the fourth quarter of 2010 and $82/barrel in 2011. WTI is expected to rise to $84/barrel by the end of next year.
As a result, EIA expects that regular-grade motor gasoline retail prices, which averaged $2.35/gal. last year, will average $2.69 in the second half of 2010, down 7¢/gal. from the average for the first half of the year. In 2011, the slightly higher projected crude oil prices combined with strengthening refiner margins are expected to boost annual average motor gasoline prices to $2.90/gal.
Despite a slight reduction in forecast global demand growth and the drop in world oil prices in recent weeks, a projected gradual reduction in global oil inventories should lend support to firming oil prices, EIA says.
EIA estimates world oil consumption growth of 1.6 million barrels per day (bbl/d) in 2010 and 1.4 million bbl/d in 2011. Countries outside of the Organization for Economic Cooperation and Development (OECD), especially China, the Middle East countries, and Brazil, represent most of the expected growth in world oil consumption
EIA expects OPEC crude oil production to rise slightly (0.3 million bbl/day in 2010 and 0.5 million bbl/day in 2011) to accommodate increasing world oil demand and to maintain OPEC market objectives. OPEC’s surplus capacity should remain near 5 million bbl/d compared with 4.3 million in 2009 and 1.5 million in 2008.
Commercial inventories held by OECD countries stood at an estimated 2.75 billion barrels at the end of the second quarter of 2010, equivalent to about 61 days of forward cover, and roughly 95 million barrels more than the 5-year average for the corresponding time of year). EIA expects supplies in terms of days of forward cover to remain high by historical standards.
Energy price forecasts are highly uncertain, as history has shown). For example, during the five-day period ending Sept. 2, WTI futures for November 2010 delivery averaged $75/barrel, and implied volatility averaged 32%. This made the lower and upper limits of the 95% confidence interval $61 and $94 per barrel. Last year at this time, WTI for November 2009 delivery averaged $70/barrel, and implied volatility averaged 47%, with the limits of the 95% confidence interval at $51 and $96/barrel.
Link to full report: http://www.eia.doe.gov/steo/contents.html