EIA expects the price of WTI crude oil to average about $93 per barrel in 2011, $14 higher than the average price last year. For 2012, EIA projects that WTI prices will continue to rise, averaging $98 per barrel. EIA's forecast assumes U.S. real gross domestic product (GDP) grows 3.0 percent in 2011 and 2.8 percent in 2012, while world real GDP (weighted by oil consumption) grows by 3.9 percent and 4.0 percent, respectively, in 2011 and 2012.
EIA expects regular-grade motor gasoline retail prices to average $3.15 per gallon in 2011, 37 cents per gallon higher than the 2010 average, and $3.30 per gallon in 2012, with prices forecast to average about 5 cents per gallon higher in each year during the peak driving season (April through September). There is regional variation in the forecast, with average expected prices on the West Coast about 25 cents per gallon above the national average during the peak driving season. There is also significant uncertainty surrounding the forecast, with the current market prices of futures and options contracts for gasoline suggesting a 35 percent probability that the national monthly average retail price for regular gasoline could exceed $3.50 per gallon during summer 2011 and about a 10 percent probability that it could exceed $4.00 per gallon. Rising crude oil prices are the primary reason for higher retail prices, but higher refining margins are also expected to contribute.
EIA estimates that natural gas working inventories ended January 2011 at 2.3 trillion cubic feet (Tcf), about 30 billion cubic feet (Bcf) or 1 percent below the 2010 end-of-January level. Inventories are expected to remain high through 2011. The projected Henry Hub natural gas spot price averages $4.16 per million Btu (MMBtu) for 2011, $0.22 per MMBtu lower than the 2010 average. EIA expects the natural gas market to begin to tighten in 2012, with the Henry Hub spot price increasing to an average of $4.58 per MMBtu.
EIA forecasts average household expenditures for space-heating fuels to total $991 during this 2010-2011 winter season, $24 higher than last year. EIA projects higher expenditures for heating oil and propane, flat expenditures for electricity, but lower expenditures for natural gas. A forecast of milder weather in the South and the West compared with the 2009-2010 winter leads to lower fuel consumption in those areas.
Global Crude Oil and Liquid Fuels
Crude Oil and Liquid Fuels Overview. EIA expects a continued tightening of world oil markets over the next two years. World oil consumption grows by an annual average of 1.5 million barrels per day (bbl/d) through 2012 while the growth in supply from non-Organization of the Petroleum Exporting Countries (non-OPEC) countries averages about 0.3 million bbl/d this year and remains flat in 2012. Consequently, EIA expects the market will rely on both inventories and significant increases in the production of crude oil and non-crude liquids in OPEC member countries to meet world demand growth. While on-shore commercial oil inventories in the Organization for Economic Cooperation and Development (OECD) countries remained high last year, floating oil storage fell sharply in 2010, and EIA expects that OECD oil inventories will decline over the forecast period to close to the middle of the previous 5-year range by the end of 2012.
There are many significant uncertainties that could push oil prices higher or lower than current expectations. Among the uncertainties are decisions by key OPEC member countries regarding their production response to the global recovery in oil demand; the rate of economic recovery, both domestically and globally; fiscal issues facing national and sub-national governments; and China's efforts to address concerns regarding its growth and inflation rates. In addition, even though Egypt is not a major supplier of crude oil or natural gas to world markets, the recent unrest in that country raises the concern that unrest could spread to other countries in the region with a larger role in supplying world energy markets or that key transit routes for energy and other goods could be disrupted.
Global Crude Oil and Liquid Fuels Consumption. World crude oil and liquid fuels consumption grew by an estimated 2.4 million bbl/d in 2010, to 86.7 million bbl/d, the second largest annual increase in at least 30 years. This growth more than offset the losses of the previous two years and surpassed the 2007 level of 86.3 million bbl/d reached prior to the economic downturn. EIA expects that world liquid fuels consumption will grow by 1.5 million bbl/d in 2011 and by an additional 1.6 million bbl/d in 2012. Non-OECD countries make up almost all of the growth in consumption over the next 2 years, with the largest contributions coming from China, Brazil, and the Middle East. Among the OECD regions, EIA expects that only North America will show oil consumption growth over the next 2 years, which will be offset by continued declines in OECD Europe and Asia.
Non-OPEC Supply. EIA projects non-OPEC crude oil and liquid fuels production will increase by 310,000 bbl/d in 2011, then decline slightly in 2012. Increases in non-OPEC oil production will be concentrated in a few countries, particularly in China and Brazil, where EIA expects each to show annual average production growth of 170,000 bbl/d in 2011. In 2012, EIA expects Canadian production growth to average 170,000 bbl/d while China and Brazil grow by 130,000 and 110,000 bbl/d, respectively. Other non-OPEC production is expected to decline. EIA expects Mexico's production will fall by about 210,000 bbl/d in 2011, followed by a further decline of 80,000 bbl/d in 2012. Similarly, production from the North Sea falls by 220,000 bbl/d and 160,000 bbl/d in 2011 and 2012, respectively. Projected U.S. crude oil production declines by 50,000 bbl/d in 2011 and by a further 190,000 bbl/d in 2012.
OPEC Supply. Forecast OPEC crude oil production increases by 0.4 million bbl/d in 2011, followed by a further increase of 1.2 million bbl/d in 2012. These production increases are in response to the increase in global demand for oil and limited growth in supplies originating in non-OPEC countries. Non-crude liquids production is expected to increase by 0.7 and 0.4 million bbl/d in 2011 and 2012, respectively. EIA expects that OPEC surplus production capacity will remain above 4 million bbl/d during the next 2 years.
OECD Petroleum Inventories. Onshore commercial oil inventories in the OECD countries remained high last year, but reports indicate floating oil storage fell sharply. Now that floating storage has been reduced, EIA expects that OECD onshore inventories will decline over the forecast period. Projected OECD stocks fall by about 55 million barrels in 2011, followed by an additional 60 million barrel decline in 2012. Days-of-supply (total inventories divided by average daily consumption) drops from 57 days to 55 days between December 2010 and the end of 2012, which is close to the middle of the previous 5-year range.
Crude Oil Prices. WTI crude oil spot prices averaged $89 per barrel in January, about the same as the December average, while over the same time period the estimated average cost of all crude oil to U.S. refineries increased by about $1 per barrel. Growing volumes of Canadian crude oil imported into the United States contributed to record-high storage levels at Cushing, Oklahoma, and a price discount for WTI compared with similar quality world crudes such as Brent crude oil. Projected WTI spot prices rise to an average of $95 per barrel in December 2011 and continue to increase to $99 per barrel by the fourth quarter of 2012.
Energy price forecasts are uncertain (Energy Price Volatility and Forecast Uncertainty). WTI futures for April 2011 delivery over the 5-day period ending February 3 averaged $93 per barrel, and implied volatility averaged 30 percent. This makes the lower and upper limits of the 95-percent confidence interval $76 per barrel and $114 per barrel, respectively, for WTI delivered in April 2011. Last year at this time, WTI for April 2010 delivery averaged $75 per barrel and implied volatility averaged 34 percent, with the limits of the 95-percent confidence interval at $60 per barrel and $94 per barrel. Based on WTI futures and options prices, the probability that the monthly average price of WTI crude oil will exceed $100 per barrel in December 2011 is about 44 percent. Conversely, the probability that the monthly average December 2011 WTI price will fall below $85 per barrel is about 32 percent.
U.S. Crude Oil and Liquid Fuels
U.S. Liquid Fuels Consumption. Total consumption of petroleum and non-petroleum liquid fuels increased by 360,000 bbl/d (1.9 percent) to 19.1 million bbl/d in 2010 (U.S. Liquid Fuels Consumption Growth Chart). The major sources of this consumption growth were distillate fuel oil (diesel fuel and heating oil), which grew by 140,000 bbl/d (3.8 percent), and motor gasoline, which increased by 60,000 bbl/d (0.6 percent). Projected total U.S. liquid fuels consumption increases by 140,000 bbl/d (0.8 percent) in 2011 and a further 170,000 bbl/d (0.9 percent), to 19.5 million bbl/d, in 2012. Motor gasoline and distillate fuel account for much of the growth in consumption.
U.S. Liquid Fuels Supply and Imports. Domestic crude oil production, which increased by 150,000 bbl/d in 2010 to 5.51 million bbl/d, declines by 50,000 bbl/d in 2011 and by a further 190,000 bbl/d in 2012 (U.S. Crude Oil Production Chart). The 2011 forecast includes production declines in Alaska of 60,000 bbl/d in 2011 and an additional decline of 20,000 bbl/d in 2012 because of the ongoing decline in production from the maturing Alaskan oil fields. EIA expects production from the Federal Gulf of Mexico (GOM) to fall by 250,000 bbl/d each year over the next 2 years. The production declines in Alaska and the GOM are partially offset by projected increases in lower-48 non-GOM production of 250,000-bbl/d in 2011 and 80,000 bbl/d in 2012.
Liquid fuel net imports (including both crude oil and refined products) fell from 57 percent of total U.S. consumption in 2008 to 49 percent in 2010, primarily because of the decline in consumption during the recession, and rising domestic production. EIA forecasts that liquid fuel net imports will average 9.6 million bbl/d in 2011 and 10.0 million bbl/d in 2012, comprising 50 percent and 51 percent of total consumption, respectively.
EIA expects slow growth in fuel ethanol production over the next 2 years. Ethanol production increases by a projected 50,000 bbl/d to 910,000 bbl/d in 2011 and then grows by an additional 10,000 bbl/d in 2012.
U.S. Petroleum Product Prices. Projected regular-grade gasoline retail prices rise from an average of $2.78 per gallon in 2010 to $3.15 per gallon in 2011 and $3.30 per gallon in 2012. There is regional variation in the forecast, with average expected prices on the West Coast about 25 cents per gallon above the national average.
On-highway diesel fuel retail prices, which averaged $2.99 per gallon in 2010, will average $3.43 per gallon and $3.51 per gallon, respectively, in 2011 and 2012. Rising crude oil prices are the primary reason for higher retail prices, but higher gasoline and distillate refining margins are also expected to contribute to higher retail prices.
The projected monthly average regular gasoline price peaks this year at $3.24 per gallon in July. New York Harbor RBOB (reformulated gasoline blendstock for oxygenate blending) futures contracts for July 2011 delivery over the 5-day period ending February 3 averaged $2.65 per gallon and implied volatility averaged 30 percent. The probability the RBOB futures price will exceed $2.80 per gallon (and the U.S. average regular gasoline retail price exceed $3.50 per gallon) in July 2011 is about 35 percent. The probability the RBOB futures price will exceed $3.30 per gallon (and the gasoline retail price exceed $4.00 per gallon) in July 2011 is about 10 percent.