The Energy Information Administration released its Short-term Energy Outlook for December last week, and ratcheted back its expected annual price for West Texas Intermediate crude oil to $100 bbl for 2008 from $101.45 a month ago, while dropping its projected 2009 WTI average price from $63.50 in November to $51 bbl.
“The increasing likelihood of a prolonged global economic downturn continues to dominate market perceptions, putting downward pressure on oil prices,” said the EIA.
World real gross domestic product growth is projected to slow to about 2.7 percent this year from roughly 4 percent in 2006 and 2007, and slide to 0.5 percent in 2009. The 2009 world real GDP was revised down from last month’s 1.8 percent growth rate projection.
“The condition of the global economy and production decisions by members of the Organization of Petroleum Exporting Countries (OPEC) are expected to remain the crucial factors driving world oil prices,” said the EIA.
The worsening global economic outlook has triggered several downward revisions in expected consumption levels, with the EIA now pointing to lost demand for crude worldwide. Analysts with the federal agency now expect global oil demand to decline by 50,000 bpd this year versus expectations for an increase in the 2008 consumption rate by 100,000 bpd in the EIA’s November outlook. The EIA is also calling for global oil consumption to tumble by 450,000 bpd in 2009 compared with an outlook month prior for flat demand next year.
If realized, it “would mark the first time in 3 decades that world consumption would decline in 2 consecutive years,” said the EIA.
In both 2008 and 2009, growth in oil demand is expected in developing nations not included in the Organization for Economic Cooperation and Development, namely China, the Middle East and Latin America. However, lost demand by countries within the OECD is expected to more than offset the increase in consumption by the developing nations.
“If the world economy recovers sooner or is stronger than EIA now anticipates, oil consumption could decline at a slower rate or potentially increase instead, putting upward pressure on oil prices,” said the Beltway analysts.
The EIA also reduced its price outlook for retail gasoline, diesel fuel and home heating oil amid “the assumption of a fragile economy” throughout the period.
For retail gasoline in 2009 the agency revised down its forecast by 34cts, expecting an annual average at $2.03 gal.
“Because of continued weakness in motor gasoline consumption, the difference between the price of gasoline and the cost of crude oil is expected to remain low throughout the forecast,” said the EIA.
The average on-highway retail diesel fuel price is forecasted to average $2.47 gal in 2009, 26cts below the prior month’s projection and down $1.33 from the 2008 average. On Dec. 8 the retail average was $2.52 gal.
The EIA also cut its residential heating oil price projection 24 percent from the 2007-2008 heating season, expecting the price to average $2.53 gal, down 78cts from last winter.
“Despite the recent cold weather that gripped much of the nation, distillate fuel consumption is projected to decline by 240,000 bpd or 5.7 percent, in 2008, and by an additional 70,000 bpd in 2009,” EIA said.
Residential propane prices are projected to average $2.10 gal this winter, a drop of 14 percent from the 2007-2008 heating season.
“However, with current low inventories, propane markets are likely to remain relatively tight this winter, with the potential for upward pressure on residential propane prices if the recent colder-than-normal weather persists,” said the EIA.
At 61.1 million bbl as of the week-ended Dec. 5, propane inventories are 4.1 percent above year prior levels.
Buffeted by the increase in prices to record levels and the weakening economy, EIA said U.S. total petroleum products consumption in 2008 is projected to fall 1.2 million bpd or 5.8 percent from the year prior average. In 2009, total petroleum products consumption is projected to decline by 200,000 bpd or 1 percent.
