NEW YORK Oct 10, 2006 (Dow Jones Newswires)
U.S. oil demand will grow by 1.7% in 2007, or 350,000 barrels a day, to 20.96 million barrels a day after staying flat this year, according to a government forecast released Tuesday.
The modest rise will come as the average price of U.S. benchmark West Texas Intermediate crude oil will dip by 1.4%, to an average of $65.92 a barrel in 2007, compared with $66.86 in 2006, the federal Energy Information Administration said.
In the current quarter, EIA sharply cut its price forecast for WTI crude by 12.6%, to $63.33 a barrel, from $72.50 in a month-earlier report. EIA said the fourth-quarter price is now expected to be 5.6% higher on year.
By year-end, though, EIA expects crude prices to be near $67 a barrel as expected oil output cuts by the Organization of Petroleum Exporting Countries tightens global oil inventories.
EIA, the statistical wing of the Department of Energy, slightly trimmed its projection for world oil demand growth in 2007 to 1.5 million barrels a day from 1.7 million barrels a day in the month-earlier report.
Global oil demand is expected to grow by 1.2 million barrels a day this year, to 85 million and to average 86.5 million in 2007, EIA said.
In China, the world's second-largest oil consumer after the U.S., demand is expected to grow by 500,000 barrels a day this year and next, reaching 7.9 million barrels a day in 2007.
EIA said only about 700,000 barrels a day of expected demand growth will be met by increased supplies from producers outside of OPEC his year, while non-OPEC will rise by 1.2 million barrels a day in 2007. In the short-term, new production is expected to come from Russia's Sakhalin-1 project and the U.K.'s Buzzard field. Next year, new projects in the Caspian region, Africa and Brazil are expected to make up 900,000 barrels a day of the projected non-OPEC growth.
While OPEC currently is discussing oil output cuts to shore up sliding prices, the EIA said it expected OPEC's 2007 output to average around the September level of 27.64 million barrels a day to meet expected demand growth.
Global spare production capacity - all of it held by Saudi Arabia, the de facto OPEC leader and the world's largest oil exporter - is expected to increase only slightly next year.
"As a result, surplus world oil production capacity is projected to remain near 30-year lows," the EIA said.
Still, global inventories, which were built up in the first half of 2006, are expected to help meet projected demand growth. But EIA forecasts that inventories held by oil companies in the major industrialized nations that make up the Organization for Economic Cooperation and Development will tighten in the current quarter, due to OPEC cuts.
"By the end of 2007, EIA projects days of supply of OECD inventories to finish at the bottom of the normal range for that time of year, which is expected to make the market even tighter," EIA said.
In the U.S., total oil demand in the first half of 2006 was down 130,000 barrels a day, or 0.6%, on year. For the second half, demand is expected to be 30,000 barrels a higher on year. Residual fuel demand will lag a year ago, due to heavy competition from lower-priced natural gas, but demand for all major products are expected to increase from last year.
Heading into the winter demand season, EIA said distillate fuel stocks (heating oil and diesel) at 151.4 million barrels are 23.7 million barrels above a year-ago and 24.6 million barrels over the five-year average.
Despite forecasts of a 5.9% colder winter than a year ago, which will lift heating oil demand, EIA projects distillate stocks at the end of the peak demand season in March 2007 will still be above normal levels, though 2.7 million barrels below a year ago.
Retail diesel fuel prices, down nearly 30 cents a gallon since August, are expected to average $2.62 a gallon in the fourth quarter, a drop of 30 cents from the third quarter. For 2006, prices are expected to average $2.73, up from $2.41 a year ago, before easing to an average of $2.66 in 2007.
Residential heating oil prices are expected to be 30 cents higher in 2006, at $2.34 a gallon and little changed at $2.33 in 2007.
Gasoline inventories were above normal levels at the end of September and "are expected to remain ample through the heating season." EIA said end-March gasoline stocks are forecast to be near their normal range, but colder weather could reduce gasoline output, "bringing beginning-of-summer inventories closer to the lower bound of the normal range."
Retail regular gasoline prices, which fell by 40 cents a gallon in September, are expected to average $2.29 a gallon in the fourth quarter, down 54 cents from the third quarter, and 10 cents below a year ago.
For all of 2006, retail gasoline prices are expected to average $2.58 a gallon, up from $2.27 a year ago, before easing to an average of $2.51 in 2007, EIA said.
Copyright (c) 2006 Dow Jones & Company, Inc.
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