Oil gains on short covering, Chinese inflation, Midwest flooding

OPEC Supply. Forecast OPEC crude oil production declines in 2011, falling by about 450,000 bbl/d, followed by an increase of 640,000 bbl/d in 2012. EIA assumes that about one-half of Libya's pre-disruption production will resume by the end of 2012. EIA projects that OPEC surplus capacity will fall from 3.9 million bbl/d at the end of 2010 to 3.6 million bbl/d at the end of 2011, followed by a further decline to 3.1 million bbl/d by the end of 2012. Forecast OPEC non‐crude liquids production increases by 0.8 million bbl/d in 2011 and by 0.4 million bbl/d in 2012.

OECD Petroleum Inventories. EIA expects that OECD onshore inventories will decline in 2011 following the steep drop in floating storage that has already occurred. Projected onshore OECD stocks fall by about 20 million barrels in 2011, followed by an additional 54 million barrel decline in 2012. Days of supply (total inventories divided by average daily consumption) drops from a relatively high 58.1 days during the fourth quarter of 2010 to 57.0 days in the fourth quarter 2011, and 55.7 days of supply in the fourth quarter 2012.

U.S. Liquid Fuels Consumption. Total consumption of liquid fuels increased by 380,000 bbl/d (2.0 percent) to 19.1 million bbl/d in 2010. The major sources of this consumption growth were distillate fuel oil (diesel fuel and heating oil), which grew by 160,000 bbl/d (4.5 percent), and motor gasoline, which increased by 40,000 bbl/d (0.4 percent). Projected total U.S. liquid fuels consumption increases by 140,000 bbl/d (0.7 percent) in 2011, and by a further 170,000 bbl/d (0.9 percent), to 19.5 million bbl/d, in 2012, which is still well below the record-high 20.8 million bbl/d in 2005.

In 2011, forecast distillate fuel consumption growth of almost 80,000 bbl/d (2.1 percent) accounts for over half of the forecast increase in liquid fuels consumption, while forecast growth in gasoline and jet fuel grow by just 16,000 bbl/d (0.2 percent) and 13,000 bbl/d (0.9 percent), respectively. In 2012 motor gasoline consumption rises by 75,000 bbl/d (0.8 percent), the highest growth rate since 2006, driven by growing population, rising employment, and rising income. Jet fuel consumption increases 23,000 bbl/d (1.6 percent) in 2012. In contrast, distillate fuel consumption growth moderates slightly to 66,000 bbl/d (1.7 percent) in 2012 as industrial output grows more slowly than in 2011.

U.S. Natural Gas Consumption. EIA expects total natural gas consumption to grow by 0.5 percent to 66.5 billion cubic feet per day (Bcf/d) in 2011. Forecast industrial consumption rises 1.9 percent to 18.4 Bcf/d in 2011, and electric power consumption rises 0.4 percent to 20.3 Bcf/d.

Projected total consumption increases by 0.7 percent in 2012 to 67.0 Bcf/d. Growth continues in the industrial and electric power sectors at 1.4 percent and 2.6 percent, respectively. Residential and commercial consumption each decline by 1.6 percent in 2012 stemming from forecast 2.2 percent reduction in natural gas-weighted heating degree-days.

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