Oil watches OPEC meeting as U.S. steps up production

OPEC’s Headache

OPEC is not what it used to be. While traders are focused on the Fed and OPEC, history in the oil patch continues to be made as evidenced by more data from the Energy Information Agency. While it seems that even Iran is admitting that supply is ok, it is because OPEC can’t afford to upset the new up and coming producer — the United States of America.

The Energy Information Administration Administrator Adam Sieminski issued the following comments on EIA’s December 2012 Short-Term Energy Outlook. U.S. crude oil production will see an “expected 760,000 barrel-per-day increase in U.S. crude oil production this year is the largest rise in annual output since the beginning of U.S. commercial crude oil production in 1859…The expected record high increase of 760,000 barrels per day in U.S. oil production this year would be the biggest since “I Love Lucy” debuted on TV in 1951 when oil output that year rose by 751,000 barrels per day…Increased drilling activity from tight shale formations in North Dakota, Montana, and Texas will boost U.S. crude oil production above 7 million barrels per day next year for the first time since 1992.”

Reuter’s reports that The U.S. Energy Information Administration said on Tuesday it expected domestic natural gas production in 2013 to be up slightly from 2012's estimated record-high levels. In its December Short-Term Energy Outlook, the EIA said it expected marketed natural gas production in 2013 to rise 0.37 billion cubic feet per day, or 0.5 percent, to a record 69.59 bcf per day. The estimate was revised up from 68.84 bcf per day in EIA's November outlook, and would mark the third straight year of record production. EIA did note that production growth has slowed from its strong upward trajectory seen in 2009-2011, but the agency said it expects growth in associated gas from crude oil production and  continued drilling in liquids-rich areas to continue to offset the decline in drilling activity. 

The agency lowered its estimate for consumption next year, expecting demand to fall 0.3 bcf per day, or 0.4 percent, from 2012 to 69.41 bcf daily. Increases in residential and commercial consumption are expected to offset declines in electric power use. Forecasts for a colder winter this year than last year imply large increases in the use of natural gas for heating, the EIA said. EIA projects the share of generation fueled by natural gas in 2013 to average about 27 percent, down from 2012's average of about 30 percent as higher gas prices prompt generators to burn more coal. EIA forecast generation fueled by coal in 2013 would rise to about 40 percent from 38 percent in 2012.  

The EIA expects imports of liquefied natural gas (LNG) to halve in 2012 to just under 0.5 bcf per day and remain near that level in 2013, as global shippers send more gas to higher-paying markets in Europe and Asia. The EIA expects Henry Hub natural gas prices in 2012 to average $2.78 per million British thermal units, up 1 cent from last month's outlook but about 31 percent below 2011's estimated average of $4.  In 2013, the EIA sees prices rising 90 cents, or 32 percent, to $3.68 per mmBtu.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


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