HOUSTON, Aug. 8 -- The US Energy Information Administration cut its forecast for world oil demand growth this year to 1 million b/d for 2001 from its previously predicted 1.2 million b/d.
The agency said in its monthly assessment of world energy markets that demand will not be as weak as some have forecast. The EIA said the Organization of Petroleum Exporting Countries will need to increase production above new quota levels by the end of the year, even after allowing for above-quota production.
"Despite this revision, the prospects for growth in world oil demand are not as unlikely as some estimates have suggested, and excess oil supplies, not disappearing demand, were largely responsible for rising inventories and weakening oil prices during the first half of 2001," the agency said.
EIA predicted world oil prices will strengthen by $2/bbl in the fourth quarter, because a June loss of UN-sanctioned Iraqi oil exports and the Sept. 1 OPEC quota cut of 1 million b/d will reduce Organization for Economic Cooperation and Development (OECD) commercial inventories over the next few months.
Economic factors that support demand growth are somewhat weaker than normal this year, EIA said, including a 2% growth in world gross domestic product compared to 3% in 1991-2000. But there have been weaker economic scenarios in the last decade, the agency observed. "World demand has grown by at least 1 million b/d during times of comparable or weaker economic growth during the past decade," it said.
In fact, the EIA said oil demand in OECD countries, which account for a little more than half of world demand, grew by 540,000 b/d during the first quarter compared to a year earlier.
"That data is consistent with a total world oil demand growth estimate of 1 million b/d," said the EIA.
The agency said with a projected 7-10% increase in oil prices this year, it does not anticipate a continued weakness in demand growth.
The agency also predicted increases in US demand for petroleum products, including gasoline, for the short term. US gasoline demand will increase 1.7%, said EIA.
It said demand growth for the first half of the year was 1.4%, but that the second half -- buoyed by modest economic growth from tax refunds and lower withholding rates -- will register growth of 1.9%.
In 2002, US gasoline demand will climb 2.2% as disposable income increases and retail gasoline prices continue a slow, steady decline.
By the end of July, as inventories swelled, gasoline prices fell to less than $1.40/gal from a peak of $1.70. EIA predicted average gasoline prices of $1.40 for the third quarter -- 11¢ less than the same period last year.
Natural gas
EIA predicts that third quarter spot natural gas prices will be 30% lower than a year ago -- and very low prices are possible within the next few months.
In the third quarter 2000, spot prices were nearly $4/Mcf. The winter's average spot prices were above $6/Mcf. Assuming normal weather this winter, wellhead prices will be 40% lower, said the agency.
It said concern for low gas storage levels sent spot and wellhead prices upward last year -- culminating in a January monthly average wellhead price for gas of more than $8/Mcf. Mild weather then reduced demand for gas.
It said, "Now we believe that, though unlikely, very low natural gas prices within the next several months are possible. Temperate weather through the end of the year, combined with economic stagnation, along with gains in gas production could result in a collapse in prices." But, the agency said, "Relatively stable world oil prices, increased gas use at electric utilities, and the assumption of normal weather are likely to keep wellhead prices levels above $3 on an annual average basis for the near term."
EIA predicted 2002's average wellhead price will be less than $3.20/Mcf, with the price dipping below $3/Mcf during several months of the year.
