Crude Oil and Liquid Fuels Overview. Tension in the oil‐producing regions of the Middle East and Africa continues to exert upward pressure on oil prices. However, this pressure has been offset by the restoration of Libyan oil output, which has thus far exceeded our prior expectations. At the same time, downside demand risks persist, stemming from fears about weakening global economic growth and the contagion effects of the European Union’s debt crisis.
Given expected rates of global oil consumption growth driven by 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) or inventory withdrawals of about 200 thousand bbl/d will be needed in 2012 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. This forecast assumes non‐OECD oil‐weighted real GDP increases by 4.9 percent and 5.2 percent in 2011 and 2012, respectively. Forecast OECD oil‐weighted GDP growth slows from 1.7 percent in 2011 to 1.5 percent in 2012. EIA expects that world crude oil and liquid fuels consumption will grow from 87.1 million barrels per day (bbl/d) in 2010 to 88.1 million bbl/d in 2011 and 89.5 million bbl/d in 2012. China and other emerging economies account for most of the projected crude oil and liquid fuels consumption growth through 2012. OECD consumption is projected to decline by 0.4 million bbl/d in 2011, and to remain relatively flat in 2012.
Non‐OPEC Supply. EIA projects that non‐OPEC liquid fuels production will grow by 0.4 million bbl/d in 2011 and 1.2 million bbl/d in 2012 to an average of 53.3 million bbl/d next year. The largest source of expected growth in non‐OPEC liquids production over the forecast is the United States, where production is projected to grow by 340 thousand bbl/d in 2011 and 240 thousand bbl/d in 2012 because of strong growth in on‐shore tight oil production. Canada, China, Colombia, and Kazakhstan are each expected to increase production at an average annual rate of 100 thousand bbl/d or more. Brazilian total liquids production remains relatively flat in 2011, as decreased ethanol output offsets modest crude oil production gains. However, expanded Brazilian crude oil offshore production drives an expected increase of nearly 190 thousand bbl/d in 2012.
In contrast, EIA projects that Russian and Mexican annual average production will decrease by 170 thousand bbl/d and 60 thousand bbl/d, respectively, between 2011 and 2012. Regional turmoil, particularly in Syria, Yemen, and Sudan introduces additional uncertainty into the non‐OPEC production outlook.
OPEC Supply. 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 both 2011 and 2012, EIA expects OPEC crude oil production to remain largely unchanged in both years after having grown by 0.7 million bbl/d in 2010. Libyan crude oil production, which began to recover in September, increased from an average of 350 thousand bbl/d in October to an estimated 550 thousand bbl/d in November. Given recent developments in Libya’s oil sector, EIA now expects Libyan crude oil production to rise to an average of 900 thousand bbl/d during the first quarter of 2012 and to 1.2 million bbl/d by the fourth quarter of 2012, compared with pre‐disruption output of 1.65 million bbl/d.
OPEC surplus crude oil production capacity falls from 3.4 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 4.1 million bbl/d by the first quarter of 2012, as Libyan production capacity comes back on line.
OECD Petroleum Inventories. EIA expects that OECD commercial inventories will decline in 2011 and 2012. However, because of declining consumption, days of supply (total inventories divided by average daily consumption) increases slightly, from 56.9 days in the fourth quarter of 2011 to 57.3 days in the fourth quarter of 2012 (Days of Supply of OECD Commercial Stocks Chart).
Crude Oil Prices. EIA has revised the projected oil price paths upward from last month’s Outlook, particularly for WTI. EIA expects that the average refiner acquisition cost for crude oil (RAC) will average $102 per barrel in 2012, slightly higher than the projection of $100 per barrel in last month’s Outlook. EIA expects that the WTI price will average $98 per barrel in 2012, well above the $91 per barrel forecast in the previous Outlook.
For most of the last 30 years, WTI traded at a premium over the average RAC price. However, the recent 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 midcontinent. This transportation bottleneck contributed to the large price discount this year for WTI relative to other U.S. and world crude oils, which reached a record price discount in the third quarter of 2011. The recent announcement of the planned reversal of the Seaway pipeline, which will begin shipping crude oil from Cushing, Oklahoma to the Gulf Coast in 2012 supports a reduced WTI price discount relative to the RAC. WTI crude oil spot prices increased from an average $86 per barrel in October 2011 to $97 per barrel in November 2011, an $11 per barrel increase, while the estimated average RAC increased from $98 per barrel to $104 per barrel, an increase of $6 per barrel. EIA expects that the WTI discount will continue to narrow to $3 per barrel below RAC by the fourth quarter of 2012.
Energy price forecasts are highly uncertain (Market Prices and Uncertainty Report). WTI futures for February 2012 delivery during the 5‐day period ending December 1, 2011 averaged $99 per barrel. Implied volatility averaged 39 percent, establishing the lower and upper limits of a 95‐percent confidence interval for the marketʹs expectations of monthly average WTI prices in February 2012 of $76 per barrel and $129 per barrel, respectively. Last year at this time, WTI for February 2011 delivery averaged $86 per barrel and implied volatility averaged 30 percent. The corresponding lower and upper limits of the 95‐percent confidence interval were $70 per barrel and $106 per barrel.