US REPORT / Short Term Energy Outlook
ENERGY INFORMATION ADMINISTRATION
Short-Term Energy Outlook
December 1997 Update (December 8, 1997)
THE December 1997 FORECAST UPDATE
IS SUMMARIZED BELOW
[To see details of this forecast update, go to the
following world wide web site on the internet:
eia.doe.gov.
An update to the Short-Term Energy Model for
December 1997 may also be found at:
eia.doe.gov.]
Overview
Prices
Crude Oil. Higher OPEC oil production quotas, agreed to over
the Thanksgiving weekend, along with the lessened uncertainty
that Iraq's oil-for-food deal with the United Nations will be
significantly interrupted have resulted in expected crude oil
prices somewhat lower than those projected last month. OPEC
agreed to raise their crude oil production ceiling from 25.033
million barrels per day to 27.500 million barrels per day, an
increase of just under 10 percent. However, OPEC crude oil
production is not expected to increase by 10 percent since many
countries are already producing at maximum capacity. Bottom line:
Even if Iraqi crude oil production remains constant , we expect
an increase in total OPEC crude oil production of about 0.6 million
barrels per day. Under the current situation, it appears that Iraq
may stop exporting oil for much of December, but will probably be
able to make any such reduction up in January. The net effect of
this expected increase in OPEC supply is reflected in a somewhat
lower crude oil price path through 1998. See "Higher
OPEC Production Could Push Oil Prices Lower" , on EIA's web site,
for details.
Natural Gas. Although there are plenty of bullish factors that can
be cited when assessing the current natural gas price outlook,
sharply lower prices than were in evidence a month ago are now holding
sway. Gas prices tumbled sharply since mid November and so the market
has evidently burst an excessive upward surge in prices just as winter
prepares to begin in earnest. Our current outlook calls for significantly
lower average spot prices this winter than we would have expected even
last month. We have revised our projections for average wellhead prices
for the heating season (October to March) to average about 20 cents per
thousand cubic feet below last month's projections. On the other hand,
these price projections are quite similar to our October 8 report of
two months ago.
Natural gas spot wellhead and near futures prices exhibited high degrees
of volatility during the period leading up to mid fall, and the last few
weeks have brought a continuation of the ride (see EIA's "Natural Gas
Weekly Market Update"). Prices rocketed up in September and generally
stayed high through the first half of November, although some pretty wild
swings were seen within this period.
Uncertainties contributing to short-term volatility included: 1) questions
about the adequacy of natural gas inventories for heating demand this winter;
2) potential current and expected winter gas demand pressures arising
from coal supply difficulties for customers served by the Union Pacific
Railroad; 3) availability of marginal domestic production this winter given
the relatively weak production performance seen so far this year; 4) doubts
about the ability of the Canadian supply system to add significantly to winter
supplies this year. There is little or no direct information at hand now that
entirely clears up any of these issues. Indirectly, we have seen evidence
that, despite relatively high electricity demand in September and early
October, and above-normal heating demand in October and November, winter
supplies of gas have not been diminished below what we would otherwise have
expected. In fact, nationally the gas market witnessed net injections into
storage in early November, which is normally beyond the end of the injection
season. Inventories remain above year ago levels, perhaps by an enhanced
margin in November. However, it is still true that, by historical
standards, the amount of gas in storage now compared to expected demand is
not particularly plentiful.
With regard to the coal transportation issue, the slowdown in coal deliveries
to some electric utilities, especially in Texas and other South Central States
was exacerbated by high electricity demand there in September, leading to
significant reductions in coal stocks. This tendency probably continued
into October, since strong electricity demand in the region again contributed to
solid U.S. electricity demand in that month (see Edison Electric Institute weekly
data on electricity output by region). November apparently brought a slowdown
in electricity demand growth compared to previous months, and this may have
granted some reduction in the urgency of the coal distribution problem.
Petroleum Products. Our forecasts for petroleum product prices are generally a
little lower than those from last month, as we have revised our crude oil
projections down by about $0.50 per barrel while our demand projections remain
about the same and inventories remain in good shape. These lower crude oil
prices are expected to be passed on through the end-use prices. Mid-winter
heating oil prices are now expected to average between 12 and 13 cents per
gallon below those seen last year, while pump prices for gasoline should be
about 7 to 9 cents per gallon below last winter's levels.
Energy Demand and Supply
Petroleum. Petroleum demand for all of 1997 now looks likely to end up 1.6
percent above 1996 levels, about half of the rate seen in 1996, but still
reasonably strong given the low levels of demand for heating fuels this year.
Transportation demand remains the mainstay of growth in the United States,
but this year petrochemical feedstocks demand joined the growth leaders. A
growth rate similar to this year seems likely in 1998, even if impetus from
the chemicals industry wanes. Demand this winter still promises to be
strong, with year-to-year growth rates around 4 percent over the next few
months, excluding January, assuming normal weather.
Petroleum stocks remain in comparatively good shape, although we have reduced
our winter trajectory for distillate fuel oil stocks slightly based on late
November weekly data. Still, total petroleum stocks are currently
between 60 and 70 million barrels (about 4 percent) above last year at this
time (see EIA's Weekly Petroleum Status Report).
Natural Gas. Strong natural gas demand growth (on a year-over-year basis) is
still in prospect for this winter, as long as one continues to assume normal
weather patterns. With this assumption, the growth rate for total gas demand
ranges from 5 to 8 percent above year-ago levels for the rest of the winter.
On the other hand, weather patterns equivalent to those observed
last winter would very significantly reduce demand pressure on natural gas
markets, perhaps resulting in minimal growth during the winter months. The
National Oceanographic and Atmospheric Administration (NOAA) has indicated
that an above-average chance of abnormally high temperatures occurring in
much of the Midwest (especially the upper plains states) exists for the
January-March 1998 period. (See the extensive weather impact analysis from
NOAA in "El Nino impacts on the United States and North America" on NOAA's
world wide web site). Undoubtedly, an attenuation of the perceived risk of
a severe (or even a normal) winter this year is contributing to the current
downward tendency in gas prices.
Electricity. The outlook for higher electricity demand this winter stems of
course from the assumption of normal weather patterns. In the base case,
overall demand is up between 3 and 6 percent over the next four months compared
to the same periods last year. Using the unchanged weather scenario discussed
above, the demand growth range would be reduced to about the 1 to 4 percent
range. One of the important supply considerations this winter, which has
obvious implications for natural gas demand, is the prospective availability
of hydroelectric power. Our base case includes a significant reduction in
hydroelectric output from last year's levels beginning this month, as the
relatively high output of last winter gives way to more normal levels now.
However, current statistics from NOAA indicate continued wet conditions in
the West and Pacific Northwest, suggesting a continuation of high levels of
hydroelectric power availability this winter. (See "CPC - Climate Operations
Branch/Selected Historical/Precipitation/Temperature Tables" on NOAA's world
wide web site). A scenario in which hydroelectric output levels are assumed
to be equivalent to those seen last winter would imply noticeably lower coal
and gas use for power generation, in the aggregate. In the case of natural
gas, we estimate that natural gas demand for power generation by electric
utilities would be approximately 5 to 10 percent lower than the base case
for the rest of the winter in the high hydroelectric case. |
