However, Fadel Gheit, senior energy analyst for Oppenheimer & Co., New York, told the newspaper that the price of oil will not stay down. "Some of the same clowns who were predicting $200-a-barrel oil a few months ago are in the crowd [image-nocss] predicting $25 a barrel," he said. "But just as we believed that oil above $100 was not sustainable by market fundamentals, oil below $30 isn't sustainable either."
Earlier this week, Joe Petrowski, CEO of Gulf Oil, predicted that pump prices might fall to $1 a gallon in early 2009. "The oil market is a manic-depressive market. It tends to overshoot," he said, adding that the price of oil could sink to $20 per barrel. "The market overshot last summer on the high side. Oil should never should have gone to $147, but it did and it can," he said. (Click here for previous CSP Daily News coverage.)
Meanwhile, the average U.S. prices for regular-grade gasoline and diesel fuel, at $1.70 and $2.52 per gallon, respectively, on December 8, were both more than $2 per gallon below their highs in mid-July. With the assumption of a fragile economy throughout 2009, along with lower projected crude oil prices, annual average retail gasoline and diesel fuel prices in 2009 are projected to be $2.03 and $2.47 per gallon, respectively, according to the just-released monthly Short-Term Energy Outlook from the Energy Information Administration (EIA).
U.S. Petroleum
Consumption. Buffeted by the increase in prices to record levels and the weakening economy, total petroleum products consumption in 2008 is projected to fall by 1.2 million barrels per day (bpd), or 5.8%, from the 2007 average (U.S. Petroleum Products Consumption Growth). Motor gasoline consumption is projected to decline by 320,000 bpd, or 3.4%, in 2008 with the year-over-year decline narrowing to 50,000 bpd in 2009. Despite the recent cold weather that gripped much of the nation, distillate fuel consumption is projected to decline by 240,000 bpd, or 5.7%, in 2008, and by an additional 70,000 bpd in 2009. In 2009, total petroleum products consumption is projected to fall by 200,000 bpd, or 1%.
Production. In 2008, domestic crude oil production is projected to average 4.9 million bpd, a decline of 130,000 bpd from last year (U.S. Crude Oil Production); however, domestic production is projected to increase in 2009 by 320,000 bpd to an average of 5.25 million bpd. This would be the first production increase since 1991.
Prices. Having fallen from record highs to below $50 per barrel, WTI prices are projected to average around $100 per barrel in 2008. Under current economic assumptions and assuming no major crude oil supply disruptions, WTI prices are expected to average $51 per barrel in 2009 (Crude Oil Prices), down from the $63.50 projected in last month's Outlook.
Regular-grade gasoline prices averaged $1.70 per gallon on December 8, down substantially from their July 14 peak of $4.11 per gallon. They are projected to average $2.03 per gallon in 2009, down from the $2.37 per gallon projected in the previous Outlook. Because of continued weakness in motor gasoline consumption, the difference between the price of gasoline and the cost of crude oil is expected to remain low throughout the forecast.
Residential heating oil retail prices this winter are projected to average $2.53 per gallon, a decrease of 78 cents from last winter's average. On-highway diesel fuel retail prices are projected to average $2.47 per gallon in 2009, down $1.33 from the 2008 average, compared with a $1.16-per-gallon decline in the price of WTI crude oil. The projected continuation of the decline in the consumption of diesel fuel in the United States as well as a slowing of the growth in distillate fuel usage outside the United States are expected to result in a weakening of refining margins.
Spot propane prices are strongly influenced by both crude oil and natural gas prices. Residential retail propane prices are projected to average $2.10 per gallon this winter, a decrease of 14% from the last winter heating season; however, with current low inventories, propane markets are likely to remain relatively tight this winter, with the potential for upward pressure on residential propane prices if the recent colder-than-normal weather persists.
Global Petroleum
Overview. The increasing likelihood of a prolonged global economic downturn continues to dominate market perceptions, putting downward pressure on oil prices. World real gross domestic product (GDP) growth is projected to slow from about 4% in 2006 and 2007 to about 2.7% this year and 0.5% in 2009. Last month's Outlook assumed world GDP would increase by 1.8% in 2009. The condition of the global economy and production decisions by members of the Organization of Petroleum Exporting Countries (OPEC) are expected to remain the crucial factors driving world oil prices.
Consumption. The status of the global economy has become the most important driver of oil consumption growth and EIA's oil consumption projections continue to be revised downward in response to lower forecasts for global economic growth. As a result, global oil consumption is expected to decline by 50,000 bpd in 2008 and by 450,000 bpd in 2009, which would mark the first time in three decades that world consumption would decline in two consecutive years. In both years, growth is concentrated in countries outside of the Organization for Economic Cooperation & Development (OECD), especially China, the Middle East, and Latin America; however, projected sharp declines in oil consumption in OECD countries more than offset any non-OECD oil consumption growth (World Oil Consumption). If the world economy recovers sooner or is stronger than EIA now anticipates, oil consumption could decline at a slower rate or potentially increase instead, putting upward pressure on oil prices.
Non-OPEC Supply. Non-OPEC supply is expected to decline by 310,000 bpd in 2008, reflecting a combination of factors that include large supply disruptions in Central Asia and the Gulf of Mexico and project delays. Although declines in many non-OPEC basins, especially Mexico, the North Sea and Russia, are expected to continue in 2009, EIA projects that total non-OPEC supply will grow by 410,000 bpd in 2009, with the largest sources of growth coming from Azerbaijan, Brazil and the United States.
The global economic slowdown and falling oil prices bring additional risk to the usual uncertainties (unexpected disruptions, project delays, underestimation of decline rates) concerning non-OPEC supply growth. Lower oil prices bring into doubt the viability of some high-cost non-OPEC projects, especially those utilizing nonconventional technology or those seeking to exploit frontier oil basins. The credit crunch associated with the global economic crisis can also make it difficult for oil companies to acquire financing for new projects. If problems in global financial markets lead to delayed investment in existing and new oil fields, then even a short-lived economic downturn could have longer-term ramifications for world oil supply. This would heighten the risk of a return to a tight supply situation once the world economy and oil demand growth recover.
OPEC Supply. OPEC is scheduled to meet on December 17 to evaluate the effectiveness of its earlier decisions to cut production targets by 1.5 million bpd and to weigh the need for additional production cuts. Although the extent of OPEC members' compliance with the last production cut is still uncertain, EIA believes that the continued weak market conditions will prompt higher-than-usual compliance among OPEC members. It remains unclear whether production cuts so far are enough to avoid a counter-seasonal inventory build in the fourth quarter of 2008, a build that would add to downward price pressure over the winter. The position of some OPEC members at the upcoming meeting may be influenced by a desire to avoid excessive production cuts that might further tighten the market and trigger a sharp price rebound that could hurt the world economy.
EIA projects that OPEC crude production will fall from 32.6 million bpd in third-quarter 2008 to 30.6 million bpd in first-quarter 2009. OPEC crude production is expected to average 30.6 million bpd in 2009, about 1.6 million bpd below 2008 levels. The combination of lower demand for OPEC oil and capacity expansions expected in several OPEC countries would lead to a rise of surplus production capacity to an average of 4 million bpd in 2009. In addition, EIA expects that OPEC production of noncrude liquids will rise substantially next year, growing by 770,000 bpd in 2009. The price forecast for 2009 reflects both of these factors.
Inventories. Revised data indicate that OECD commercial inventories rose by 568,000 bpd in third-quarter 2008, somewhat higher than historic rates for inventory builds during this time of year. OECD commercial inventories stood at 2.65 billion barrels at the end of the third quarter, equivalent to 57 days of forward consumption cover. On the basis of days of forward cover, OECD commercial inventories are well above historic levels, and EIA projects that they will remain there through the end of 2009.
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