Oil prices continue to face upward price pressure because of supply uncertainty resulting from ongoing unrest in the oil-producing regions of the Middle East and North Africa. However, there may be downward price pressure if Libya is able to ramp up oil production and exports sooner than anticipated. At the same time, downside demand risks continue as fears persist about weakening global economic growth, contagion effects of the debt crisis in the European Union, and other fiscal issues facing national governments.
Given expected rates of global oil consumption growth, the engine for which will be emerging markets outside of the Organization for Economic Cooperation and Development (OECD), a combination of increased oil output from members of the Organization of the Petroleum Exporting Countries (OPEC) and inventory withdrawals will need to supplement non-OPEC supply growth in order for the oil market to balance at the prices projected in this Outlook.
Global Crude Oil and Liquid Fuels Consumption
EIA expects that world crude oil and liquid fuels consumption will grow from its record-high level of 87.1 million barrels per day (bbl/d) in 2010 to 88.2 million bbl/d in 2011 and 89.6 million bbl/d in 2012 (World Liquid Fuels Consumption Chart). China and other emerging economies account for all of the projected crude oil and liquid fuels consumption growth through 2012. Consumption in member countries of the OECD is projected to decline by 0.4 million bbl/d in 2011 and to remain relatively flat in 2012.
EIA projects that non-OPEC liquid fuels production will grow by 0.4 million bbl/d in 2011 and 1.1 million bbl/d in 2012, to an average of 53.3 million bbl/d next year (Non-OPEC Crude Oil and Liquid Fuels Production Growth Chart). The largest sources of expected growth in non-OPEC oil production over the forecast period are Canada, China, Colombia, Kazakhstan, and the United States, with average annual growth in each country of over 100 thousand bbl/d. In contrast, forecast Russian and Mexican projected production is lower at the end of the forecast period. Regional turmoil, particularly in Syria and Yemen, exerts additional pressure on the non-OPEC outlook and on global oil prices.
EIA revised Brazil's liquids fuels production forecast downward for both 2011 and 2012 by 140 thousand bbl/d and 90 thousand bbl/d, respectively. The revisions are due to the decrease in projected ethanol production resulting from a poor sugar cane harvest and reduced investment. However, EIA expects that Brazil's crude oil production will continue to increase through the forecast period.
While forecast OPEC non-crude liquids production, which is not subject to production targets, is expected to increase by 0.4 million bbl/d in 2011 and by 0.5 million bbl/d in 2012, EIA expects OPEC crude oil production to remain flat in both 2011 and in 2012, after having grown by 0.7 million bbl/d in 2010. Libyan oil exports resumed at the end of September, averaging about 0.2 million bbl/d. EIA expects Libyan crude oil exports to rise to 0.35 million bbl/d during the first quarter of 2012 and to 0.8 million bbl/d by the end of 2012, compared with pre-disruption exports of 1.5 million bbl/d. OPEC surplus crude oil production capacity falls from 3.5 million bbl/d in the fourth quarter of 2010 to a projected 3.0 million bbl/d in the fourth quarter of 2011, but then increases to 4.0 million bbl/d in the fourth quarter of 2012, as Libyan production capacity comes back on line, freeing up capacity in other OPEC countries (OPEC Surplus Crude Oil Production Capacity Chart).
OECD Petroleum Inventories
EIA expects that OECD commercial inventories will decline in both 2011 and 2012. However, because of declining consumption, days of supply (total inventories divided by average daily consumption) falls slightly, from 57.7 days to 57.4 days between the fourth quarters of 2011 and 2012 (Days of Supply of OECD Commercial Stocks Chart).
Crude Oil Prices
West Texas Intermediate (WTI) crude oil spot prices fell from an average of $110 per barrel in April to $86 per barrel in August, and remained near this level through October (West Texas Intermediate Crude Oil Price Chart). EIA has revised the projected oil price paths slightly upward from last month's Outlook. EIA expects that the U.S. refiner average crude oil acquisition cost will average $100 per barrel in 2011 and 2012, slightly higher than the projections of $99 per barrel and $98 per barrel for 2011 and 2012, respectively, in the previous Outlook.
For most of the last 30 years, WTI has traded at a premium over the average U.S. refiner acquisition cost of crude oil. However, the growth in crude oil supply, particularly from Canada and North Dakota, to the midcontinent region where WTI is traded, has not yet been matched by increases in transportation capacity out of the Midwest to the refining centers, such as the Gulf Coast. This transportation bottleneck contributes to the large price discount for WTI relative to other U.S. and world crude oils. After reaching a record price discount in the third quarter of this year, the discount for WTI is now expected to diminish modestly as the flow of crude oil out of the mid-continent region increases. Consequently, the projected U.S. refiner acquisition cost of crude oil, which averaged $11 per barrel above WTI in the third quarter of this year, narrows to $8 per barrel above WTI by the fourth quarter of 2012, as rail and truck capacity is added.
Energy price forecasts are highly uncertain (Market Prices and Uncertainty Report ). WTI futures for January 2012 delivery during the 5-day period ending November 3 averaged $93 per barrel. Implied volatility averaged 39 percent, establishing the lower and upper limits of a 95-percent confidence interval for the market's expectations of monthly average WTI prices in January of $72 per barrel and $121 per barrel, respectively. Last year at this time, WTI for January 2011 delivery averaged $85 per barrel and implied volatility averaged 31 percent. The corresponding lower and upper limits of the 95-percent confidence interval were $69 per barrel and $103 per barrel.