03-03-06
US and world oil demand will be lower than expected through June as petroleum
prices stay high, the government's top energy forecasting agency said.
The projections of lower demand, particularly for the second quarter, come as
OPEC ministers meet in Vienna to review their production policies and could
justify concerns of some cartel members that output needs to be cut at some
point in the coming months to prevent a drop in crude prices.
The US Energy Information Administration revised down its forecast for global
oil demand growth by 100,000 bpd for both the current quarter and the second
quarter, with consumption averaging 84.9 mm bpd and 83.7 mm bpd, respectively.
The United States, which is the world's largest oil user and OPEC's biggest
customer, accounts for much of that reduction due to an expected drop in
residual fuel demand. The EIA now sees the growth in US oil demand down 40,000
bpd for the January-March period and down 90,000 bpd over April-June.
The slowdown in the secondquarter reflects expected shutdowns of US
refineries for routine maintenance, which will cut crude runs and the production
of residual fuel, which is the last product made from a barrel of oil and used
by ships for fuel, according to EIA analyst Tancred Lidderdale.
"With the higher (refinery) turnaround schedule, the lower crude runs we have in
the forecast, that essentially reduces that residual fuel oil supply," he said.
As a result, ships will get their fuel in overseas ports where more residual
supplies are available, moving demand out of the United States, he said.
Total US oil demand should average 20.63 mm bpd in the first quarter and
20.82 mm in the second quarter, the EIA said. So while global oil demand will be
lower in the second quarter compared to the first quarter, which is normal,
demand in the United States will be unusually higher in the second quarter than
in the current quarter. That's because record warm US temperatures in January
slashed demand for heating fuels in the first quarter.
"It's the weather effect," Lidderdale said.
Energy prices are forecast to stay high, which could also account for some of
the dampening in demand growth. US crude oil prices are expected to average $ 64
a barrel this year and $ 61 in 2007, the EIA said.
The retail gasoline price, which averaged $ 2.33 a gallon, is forecast to rise
above $ 2.50 during the early summer months, the agency said. The price for a
gallon of regular unleaded gasoline should average $ 2.42 this year, up 15 cents
from last year, and then average $ 2.36 in 2007, the EIA said.
Even though global demand will be lower than previously forecast, OPEC
ministers are expected to decide to keep oil production steady at the meeting,
finding it difficult to justify an output cut with petroleum prices so high.
The oil minister for OPEC member Kuwait said he thinks the cartel "truly
believes that there will be oversupply in the market in the next quarter but
because of the price factor and because of the geopolitical factors we believe
we will continue to maintain the current production."
The drop in demand will help build US petroleum inventories. The EIA said
gasoline stocks, which are at the highest level in almost seven years, will be 9
mm barrels higher than it previously forecast for the end of March and should
reach 215 mm barrels.
While high petroleum inventories would usually keep prices low, this is not the
case at the moment, because refiners are keeping those stocks in reserve as a
cushion against possible supply disruptions due to new US fuel specifications
and geopolitical tensions in OPEC countries like Saudi Arabia, Venezuela,
Nigeria, Iran and Iraq, Lidderdale said.
"Those high (US) inventories may not necessarily be available for sale... if
you've got a situation of supply uncertainty," he said.
Source: PIN