EIA's Cook: Oil Price Has Seen Its Lows, Will Set New Record
by Karen Matusic
FWN Financial News 6/3/2005
URL: rigzone.com
WASHINGTON, Jun 03, 2005 (Dow Jones Commodities News via Comtex) By Karen Matusic Of DOW JONES NEWSWIRES
Oil prices will set new record highs during the second half of the year, as demand growth chips away at spare production capacity and oil inventories until there isn't enough to cover an unexpected supply hiccup, the U.S. Department of Energy's top oil statistician said.
In an interview late Thursday, John Cook, director of the petroleum division of the DOE's Energy Information Administration, said OPEC needs to maintain output at high levels to keep prices from spiraling out of control.
"I think we will see new records, not necessarily by much, but I think we may even average $60 for a month," Cook said. "The demand growth is going to be there, and the inventory surpluses we have are pretty paltry to begin with, and they are going to disappear. We are not going to have much spare capacity at all in the fourth quarter."
Chinese and U.S. demand growth will remain robust though not as strong as in 2004, Cook said. Chinese demand is expected to rise by at least 600,000 barrels a day this year, or 9%, while U.S. demand will probably climb by some 400,000 b/d, or 2%, Cook said.
Red-hot demand growth for diesel and other middle distillates like heating oil and jet fuel will more than outpace a slower-than-expected rise in demand for gasoline in the U.S., he said.
Cook's views are sharply at odds with those of some analysts, like IFR Energy Services analyst Tim Evans, who thinks prices are well above levels supported by fundamentals.
"Stocks are going to build and then remain at elevated levels," Evans wrote this week in a note. "At some stage that's going to translate into much lower price levels as the conventional wisdom for a tight Q4 is confronted by ample supplies."
But Cook's concerns are in line with those expressed by analysts at other firms, like Barclays Capital.
Market bears who think high commercial petroleum inventory levels in the U.S., the world's biggest oil consumer, mean high prices aren't justified by fundamentals should reconsider, Cook cautioned.
"The data has not changed the big picture," says Cook, whose agency compiles a much-watched weekly status report on U.S. oil inventories and demand. "This is still the weakest period of the year for demand, yet you are seeing very strong structural demand growth in the only place you can really see it [the U.S.] and you got to know there is strong demand growth in China."
U.S. crude stocks currently stand near a six-year high, which all things being equal would take some pricing power away from producers. But the seasonal rise in U.S. refinery runs should begin to chip away at that surplus and leave a very tight balance in the fourth quarter, when demand typically peaks, Cook said.
Production problems in Iraq will further constrain supplies. Saudi Arabia is the only oil producer in the world with significant spare capacity, and much of that is of heavy, high-sulfur crude that is difficult for many refiners to process efficiently.
"The spare cushion will basically be below any kind of supply hiccup anywhere, including a demand-driven hiccup like a couple months of really cold weather," Cook said. |
