Oil markets are dealing with uncertain supply and high demand, causing crude oil prices to increase from $122 on June 4 to more than $138 on June 6, according to the latest Short-Term Energy Outlook released by the U.S. Energy Information Administration (EIA).
In the past week, crude oil dropped again, to $131 per barrel, but EIA’s estimate for the year of $122 per barrel in 2008 is still $50 higher than last year’s $72 average.
“Diesel fuel retail prices in 2008 and 2009 are projected to average $4.32 per gallon, up from $2.88 per gallon last year,” the report said. “This reflects strength in diesel demand, particularly in emerging markets, that has significantly increased the margins between diesel prices and crude oil costs from those of last year. Diesel fuel prices are projected to remain near the June 2 price of $4.71 per gallon over the next few months as refiner margins begin to weaken slightly, offsetting the projected rise in crude oil costs.”
According to EIA, world oil consumption is projected to grow by one million barrels per day in 2008, although U.S. consumption is estimated to decline by about 290,000 barrels per day because of higher prices and slow economic growth.
“The combination of rising consumption, further downward revisions in the supply outlook for countries outside of the Organization of the Petroleum Exporting Countries (OPEC), and low surplus production capacity reinforce the perception that supply is having a difficult time keeping up with demand growth, accounting for much of the upward trend in oil prices,” the report stated.
“Consumption in countries outside of the Organization for Economic Cooperation and Development (OECD) continues to grow rapidly, offsetting weaker consumption in OECD countries, especially the United States,” the report continued. “Declining production in a number of non-OPEC nations, including Mexico, United Kingdom, and Norway, is largely offsetting increases in other countries. Slow growth in non-OPEC supply is coinciding with disruptions in supplies from some OPEC countries, such as Nigeria. Ongoing geopolitical concerns in several producing countries, including Venezuela and Iran, have contributed to oil price volatility.”
EIA said that OPEC crude oil production is projected to average 36.9 million barrels per day in the second quarter, an increase of 140,000 from the first quarter. According to EIA, lower production in Nigeria was offset by increased production in Iraq and Saudi Arabia.
U.S. production remains steady, EIA said, with 2008 domestic crude oil output projected at 5.1 million barrels per day, the same as in 2006 and 2007, although it is expected to grow to 5.3 million in 2009. While Alaskan production has fallen, growth in the lower 48 states and the Gulf of Mexico offset it, EIA said.