Periodically the Energy Information Administration (EIA) updates its forecast of current energy trends. This is a "heads up" for firms that depend on energy as a major cost center in their business. The latest EIA update was released on Tuesday and suggests prices will be more favorable in the future.
The EIA said U.S. oil demand during the first half of 2008 fell by an average of 800,000 bpd compared to 2007. This was the biggest volume decline in 26 years. Not since the oil crisis of 1979 which prompted things like smaller cars and a 55 mph speed limit has demand declined so sharply. The EIA said slower economic growth coupled with high gasoline prices contributed to the decline.
As a result of lower demand and higher production the EIA is now projecting oil prices to average $124 per barrel in 2009. That is down from their July estimate of $133. The EIA said demand destruction due to price in the U.S. was now beginning to be seen worldwide. The EIA aid the decline in prices could be short lived if demand rebounds sharply or expected increases in supply do not materialize.
The EIA said it expects non-OPEC supply to rise by 510,000 bpd in the second half of 2008 and increase to 850,000 bpd in 2009. The U.S. and Azerbaijan are seen as the biggest contributors to this increase. The EIA said supply from OPEC countries decreased by 300,000 bpd in the first half of 2008. OPEC supply was expected to rise in Q3 but continue to decline in Q4 and in 2009.
U.S. gasoline prices are expected to average $3.88 per gallon in Q3, down from the previous forecast of $4.21. Diesel is expected to average $4.18 in 2008 and $4.27 in 2009.
World oil demand growth is expected to average +1.2% in Q3 and slower than the +1.5% previously expected. Demand is expected to be 86.33 mbpd in Q3. That is 1.06 mbpd higher than in 2007. All demand growth is expected to come from emerging economies like China and India with demand growth from industrialized nations relatively flat. Demand in China is expected to grow by 6.3% or 480,000 bpd for the quarter to 8.07 mbpd and grow another 400,000 bpd in 2009. Global 2009 demand is expected to grow to 87.3 mbpd.
OPEC oil production is expected to grow to 32.9 mbpd in Q3 but then decline to 32.4 in Q4 and 31.9 mbpd in 2009. At the same time excess OPEC capacity will increase from its stated current cushion of 1.2 mbpd to 3.6 mbpd by the end of 2009. Most of that excess capacity will come from Saudi Arabia and it remains to be seen if it will actually appear as expected. Rumors persist that drilling and production efforts are not as successful as previously hoped.
The EIA report with its reduced demand, higher production estimates pushed the price of crude under $113 on Tuesday despite the shutdown of the pipelines in Georgia. Wednesday's inventory report could push them lower if the backlog of tanker traffic from Eduardo was successful in offloading after the storm passed.