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Petroleum and Natural Gas Outlook
Briefing for the
National Association of State Energy Officials
2005 Energy Outlook Conference
Washington, DC
Mike Burdette
Petroleum Division, Energy Information Administration
February 17, 2005
EIA’s Petroleum and Natural Gas Outlook
• Crude oil price outlook• Global oil supply/demand fundamentals• Global and U.S. petroleum stocks• U.S. refinery capacity and utilization• U.S. petroleum product supply, demand,
and prices• Natural gas price and supply outlook• Residential heating fuel costs
0
10
20
30
40
50
60
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Do
llar
s p
er B
arre
l
Forecast
WTI Crude Oil Price: Potential for Volatility Around Base Case
Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.
Weighing the Market
BullsBulls•Continued strong economic and oil demand growth
•Little spare capacity available
•Relatively low inventories
•Possible supply disruptions, including Iraq, Russia, Venezuela, Saudi Arabia, and Nigeria
BearsBears•Slowing economic and oil demand growth
•More supply
•Inventory recovery
•More capacity growth
•Milder winter weather
•Easing supply risks
0
10
20
30
40
50
60
70
Jan
-90
Jan
-91
Jan
-92
Jan
-93
Jan
-94
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
2004
Do
llar
s p
er B
arre
l/Day
s S
up
ply
0
2
4
6
8
10
12
14
Mill
ion
Bar
rels
per
Day
WTI Spot Price (2004 $)OECD Days SupplyWorld Excess Production Capacity (right axis)
Low Excess Capacity and Low Days of Supply Are Fundamentals Supporting High Crude Prices
Sources: WTI: Reuters; OECD Days Supply: International Energy Agency; World Excess Production Capacity: U.S. Energy Information Administration estimates.
OPEC Spare Capacity Is Extremely Tight Right Now
0
5
10
15
20
25
30
35
Ja
n-9
0
Ja
n-9
1
Ja
n-9
2
Ja
n-9
3
Ja
n-9
4
Ja
n-9
5
Ja
n-9
6
Ja
n-9
7
Ja
n-9
8
Ja
n-9
9
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
Mil
lio
n B
arr
els
pe
r D
ay
OPEC Crude Oil Production
Spare Capacity
Current Excess Capacity
Saudi Arabia 1.5 – 2.0
Other Persian Gulf 0.1
Other OPEC 1.6-2.1
Source: U.S. Energy Information Administration estimates.
Annual World Oil Demand Growth Was Unexpectedly Strong in 2004
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1991-1999
Average
2000 2001 2002 2003 2004 2005 2006
Mil
lio
n B
arr
els
pe
r D
ay
US
China
Rest of the World
ForecastHistory
Source: EIA, Short-Term Energy Outlook, February 2005.
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Bil
lio
n B
arre
ls
25
30
35
40
45
50
55
60
NOTE: Colored Band is Normal Stock Range
OECD Commercial Inventories
Days Supply (right axis)
Inventories (left axis)
OECD Commercial Oil Inventories(Using 5-Year Average and +/- 1 STD)
Source: History – IEA; Forecast – EIA Short-Term Energy Outlook, February 2005.
U.S. Crude Inventories Projected to Remain in Normal Range
250
270
290
310
330
350
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
NOTE: Colored band is the normal inventory range.
U.S. Crude Oil InventoryForecastHistory
Sources: EIA, Short-Term Energy Outlook, February 2005.
Mill
ion
Ba
rre
ls
U.S. Gasoline and Distillate Inventories
75
100
125
150
175
200
225
250
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Mil
lio
n B
arre
ls
NOTE: Colored Bands are Normal Stock Ranges
History Forecast
Distillate
Gasoline
Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.
Capacity Surplus Disappearing, Creating Short-Term Challenge
0
2
4
6
8
10
12
14
16
18
20J
an
-81
Ja
n-8
3
Ja
n-8
5
Ja
n-8
7
Ja
n-8
9
Ja
n-9
1
Ja
n-9
3
Ja
n-9
5
Ja
n-9
7
Ja
n-9
9
Ja
n-0
1
Ja
n-0
3
Ja
n-0
5
Mil
lio
n B
arr
els
Pe
r D
ay
U.S. Refining Capacity & Inputs
Gross Inputs
Operable Capacity
Forecast
Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.
U.S. Gasoline Supply and Demand
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
Ja
n-0
2
Ma
r-0
2
Ma
y-0
2
Ju
l-0
2
Se
p-0
2
No
v-0
2
Ja
n-0
3
Ma
r-0
3
Ma
y-0
3
Ju
l-0
3
Se
p-0
3
No
v-0
3
Ja
n-0
4
Ma
r-0
4
Ma
y-0
4
Ju
l-0
4
Se
p-0
4
No
v-0
4
Ja
n-0
5
Ma
r-0
5
Ma
y-0
5
Ju
l-0
5
Se
p-0
5
No
v-0
5
Ja
n-0
6
Ma
r-0
6
Ma
y-0
6
Ju
l-0
6
Se
p-0
6
No
v-0
6
Th
ou
sa
nd
Ba
rre
ls p
er
Da
y
Net Imports
Production
Demand
Actual Forecast
Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.
Gasoline Supply/Demand BalanceReflected in Spreads
0102030405060708090
100110120130140150
Jan
-97
Jul-
97
Jan
-98
Jul-
98
Jan
-99
Jul-
99
Jan
-00
Jul-
00
Jan
-01
Jul-
01
Jan
-02
Jul-
02
Jan
-03
Jul-
03
Jan
-04
Jul-
04
Jan
-05
Cen
ts P
er G
allo
n
0
10
20
30
40
50
60
U.S. Average Spot Regular Gasoline and WTI Crude Oil Price
Source: Reuters.
Spot Gasoline Price
WTI Price
Crude Oil, Gasoline, and Diesel Fuel Prices
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
$/G
allo
n
0
20
40
60
80
100
120
140
160
180
200
220
Cen
ts/G
allo
n
Forecast
Sources: EIA Short-Term Energy Outlook, February 2005.
Retail Diesel Fuel
Retail Regular Gasoline
Crude Oil (WTI)
0
2
4
6
8
10
12J
an
-00
Ju
l-0
0
Ja
n-0
1
Ju
l-0
1
Ja
n-0
2
Ju
l-0
2
Ja
n-0
3
Ju
l-0
3
Ja
n-0
4
Ju
l-0
4
Ja
n-0
5
Ju
l-0
5
Ja
n-0
6
Ju
l-0
6
Do
llar
s p
er T
ho
usa
nd
Cu
bic
Fee
t Forecast
U.S. Natural Gas Spot Prices – Henry Hub
Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.
Working Gas in Underground Storage
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Bil
lio
n C
ub
ic F
eet
NOTE: Colored band is the normal inventory range.
ForecastHistory
Sources: EIA, Short-Term Energy Outlook, February 2005.
Residential Heating Fuel Costs
Selected Average Consumer Prices and Expenditures for Heating Fuels During the Winter
Average Actual Actual Actual Projections % Change1999-2001 2001-2002 2002-2003 2003-2004 2004-2005 from 2003-2004
Natural Gas (Midwest) Consumption (mcf*) 88.8 81.3 94.9 89.1 89.0 0.0 Avg. Price ($/mcf) 7.61 7.40 8.41 9.76 10.72 9.8 Expenditures ($) 676 602 798 870 954 9.7 Heating Oil (Northeast) Consumption (gallons) 673 577 743 700 694 -0.9 Avg. Price ($/gallon) 1.12 1.10 1.34 1.36 1.82 33.6 Expenditures ($) 754 637 995 953 1261 32.3 Propane (Midwest) Consumption (gallons) 877 803 940 882 882 0.0 Avg. Price ($/gallon) 1.10 1.11 1.20 1.30 1.56 20.1 Expenditures ($) 965 888 1124 1147 1377 20.0
Consumption based on typical household use for regions noted. Prices are retail national averages.*thousand cubic feet.
Source: Short-Term Energy Outlook, February 2005.
Petroleum and Natural Gas OutlookConclusion
• EIA expects global crude oil prices to decline modestly this year and next, but remain over $40 per barrel (WTI)
• Growth in global oil demand has outstripped that in supply in recent years, decreasing spare production capacity
• Global production capacity expansion will begin to catch up, re-establishing some increment of spare capacity
• Global and U.S. petroleum inventories will return to/remain near average levels through next year
• U.S. gasoline supplies appear solid to date ahead of the driving season, but strong demand, limited U.S. refinery capacity, and competition for imports could tighten the balance
• U.S. retail gasoline prices will peak near last year’s highs• Natural gas prices are expected to soften due to adequate supplies• LNG will grow in importance in the U.S. natural gas supply picture• Residential heating fuel costs for this winter will total 10-30% more
than last year