MENAF - 12/4/2006
Continued steady world oil demand growth, combined with only modest increases in world spare oil production capacity and the continuing risks of geopolitical instability, are expected to keep crude oil prices high through 2006, says US Energy Information Administration (EIA) in its short-term energy outlook report, released yesterday.
By September 2006, fuel prices are expected to be much lower than last year because of the crude oil and natural gas production and refinery outages caused by Hurricanes Katrina and Rita in 2005.
The world oil market conditions, growth in US demand, and ongoing implementation of domestic fuel quality requirements are expected to keep consumer prices for motor fuels and other petroleum products high in 2006. Higher crude oil costs together with higher margins (retail price minus crude oil cost and taxes, per gallon) are also expected to contribute to increases at the pump.
Last year, oil markets were negatively impacted by the two hurricanes in the US that also contributed in making overall non-Opec production growth zero, but, in some ways 2006 is likely to bring an even tighter global petroleum market than 2005. The consumption growth outpaces production growth in 2006 by 0.4 million barrels per day, compared to 0.1 million bbl/d greater consumption growth than production growth in 2005. Also, while the world experienced a global stock build in 2005 of 0.5 million bbl/d, a stock build of just 0.1 million bbl/d is expected in 2006.
In addition, recent events in Nigeria that have shut in production, the security situation in Iraq, and the Iranian nuclear situation contribute to current and projected high oil prices. The year 2007, however, is expected to see a market that is somewhat looser as non-Opec supply grows more strongly.
While world spare crude oil production capacity is projected to increase modestly in 2006 compared to 2005, Opec crude oil production stays flat in 2006 compared to 2005, instead of increasing along with non-Opec supply to meet demand growth. Spare capacity in Saudi Arabia should grow in 2006, but the net amount is not large enough to really reverse the trend whereby inventories must play a larger role buffering the market, with the attendant price effects.