WSJ.com - U.S. Cuts 2005 Estimate For World Oil Demand
WSJ.com - U.S. Cuts 2005 Estimate For World Oil Demand
Rebound Is Expected for Next Year
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
October 12, 2005 11:08 a.m.
U.S. energy forecasters Wednesday slashed their estimate of 2005 world oil demand, citing the damage caused by hurricanes and high prices in the U.S., but projected slightly stronger growth than previously forecast for next year.
The Energy Information Administration, the statistics arm of the U.S. Department of Energy, cut its 2005 outlook by 500,000 barrels a day, to 83.7 million barrels a day, after concluding that U.S. oil demand will contract this year. The cut is significant despite its small size -- just 0.6% -- as it brings the EIA's formerly bullish outlook for demand more into line with other forecasters' views.
Separately, the Energy Department forecast Wednesday that winter heating bills will be a third to a half higher for most families across the country, with the sharpest increases expected for those who heat with natural gas.
The EIA forecast also reinforces conclusions drawn by other analysts that the now-evident hit to 2005 oil demand may be a passing phenomenon. The Paris-based International Energy Agency, for example, sees oil demand growth picking up next year. Similarly, minutes released Tuesday show U.S. Federal Reserve policy makers have raised their forecast for the country's economic growth next year, citing efforts to rebuild after a pair of devastating hurricanes.
Higher Demand in 2006
"Demand growth is projected to rebound in 2006," the EIA said in its monthly Short Term Energy Outlook. The EIA sees U.S. benchmark oil prices averaging above $63 a barrel through 2006, up $1 from last month's report.
The question of demand is central to the strength of oil markets, as stretched producers and refiners offer little prospect of relief from the supply side. Oil prices fell sharply last week on concerns demand is weakening, though they have since recovered on the prospect the damage could be short-lived.
The U.S. accounted for more than half of the EIA's downward revision to 2005 oil demand. In fact, the EIA said it now expects U.S. oil demand to contract this year by nearly a full percentage point -- a huge swing for a market that typically grows by just 1.5% a year.
"Average demand for the first half of 2005 was at about the same level as during the first half of 2004 because rapidly rising prices constrained motor gasoline demand growth, weather factors depressed heating oil demand, and relative price factors lowered residual fuel oil and propane demand," the EIA said in its outlook. "Hurricane-related disruptions combined with increased prices result in a lower projected demand for petroleum products relative to pre-hurricane predictions."
The EIA now expects world oil demand to grow by just 1.2 million barrels a day this year, down from a previously forecast 1.7 million barrels a day. The EIA expects demand to rebound next year, both in the U.S. and the world. Demand will be growing from a lower base, so the outright level won't get as high, but the EIA projects stronger growth. The EIA's latest report forecasts world oil demand growth of 1.9 million barrels a day next year, or 2.2%, slightly faster than the 1.8 million barrels a day seen for this year. U.S. demand is also seen growing by 2.2% next year -- up 460,000 barrels a day, compared with a previous forecast of just 330,000 barrels a day.
Paying More for Heat
The Energy Department said natural-gas users can expect to pay an average of $350 more during the coming winter, compared with last year, an increase of 48%. Those who heat their homes with fuel oil will pay $378 more, or 32% higher than last winter. Propane users can expect a percentage jump in their bills similar to those of fuel-oil users.
In its winter fuels outlook report, the EIA assumed a normal winter and steady progress in restoring oil and natural-gas production and refinery output from the damage inflicted by hurricanes Katrina and Rita. "Should colder weather prevail, expenditures will be significantly higher," the EIA said.
The agency and the natural-gas industry say heating costs could vary widely among regions. A month ago, the EIA said natural-gas prices could jump as much as 71% in the Midwest, where 4-of-5 homes are heated by gas. It made no such specific assessment this time, but acknowledged that a colder-than-normal winter in the Midwest would produce significantly higher costs.
The EIA expects continued recovery of the energy system in the Gulf region in the coming months. But the agency expects a third of the Gulf's crude oil and a fifth of its natural gas to remain shut-in into December.
It also projected wholesale natural-gas prices would stay at about $12 per thousand cubic feet through the winter heavy demand period, twice what it cost last winter.
More than half of all U.S. households heat with natural gas. But many of those who rely on electric heat, nearly a third of the country, may also see bills go up because many power plants run on natural gas. And users of fuel oil -- more than half the households in New England -- are expected to see their costs jump by a third or more over last winter, according to industry and government estimates. The cost of fuel accounts for about 70% of the price utilities charge retail residential customers, according to the American Gas Association.
"We have never had prices so high and increase so quickly," said Mark Wolfe, executive director of the National Energy Assistance Directors Association, which represents the state agencies that distribute money to help low-income families pay their fuel bills. This winter, Mr. Wolfe expects more than a million additional applicants for the government program, a 20% increase over last year, with not enough money to go around. Congress provided $2.2 billion for the program, known as Liheap, last year. Mr. Wolfe said $5.1 billion is needed to keep pace this coming winter with the soaring energy costs and expanded demand.
Meanwhile, U.S. government forecasters said Wednesday they expect warmer-than-normal temperatures this winter across much of the country, though the outlook for energy-consuming regions, including the Midwest and East Coast, is less certain. The winter outlook, released by the National Oceanic and Atmospheric Administration, sees warmer-than-normal temperatures across much of the central and western U.S., including Alaska and Hawaii, while the Midwest, Southern California coast and East Coast have equal chances of warmer, cooler or near-normal temperatures this winter.
Rebound Is Expected for Next Year
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
October 12, 2005 11:08 a.m.
U.S. energy forecasters Wednesday slashed their estimate of 2005 world oil demand, citing the damage caused by hurricanes and high prices in the U.S., but projected slightly stronger growth than previously forecast for next year.
The Energy Information Administration, the statistics arm of the U.S. Department of Energy, cut its 2005 outlook by 500,000 barrels a day, to 83.7 million barrels a day, after concluding that U.S. oil demand will contract this year. The cut is significant despite its small size -- just 0.6% -- as it brings the EIA's formerly bullish outlook for demand more into line with other forecasters' views.
Separately, the Energy Department forecast Wednesday that winter heating bills will be a third to a half higher for most families across the country, with the sharpest increases expected for those who heat with natural gas.
The EIA forecast also reinforces conclusions drawn by other analysts that the now-evident hit to 2005 oil demand may be a passing phenomenon. The Paris-based International Energy Agency, for example, sees oil demand growth picking up next year. Similarly, minutes released Tuesday show U.S. Federal Reserve policy makers have raised their forecast for the country's economic growth next year, citing efforts to rebuild after a pair of devastating hurricanes.
Higher Demand in 2006
"Demand growth is projected to rebound in 2006," the EIA said in its monthly Short Term Energy Outlook. The EIA sees U.S. benchmark oil prices averaging above $63 a barrel through 2006, up $1 from last month's report.
The question of demand is central to the strength of oil markets, as stretched producers and refiners offer little prospect of relief from the supply side. Oil prices fell sharply last week on concerns demand is weakening, though they have since recovered on the prospect the damage could be short-lived.
The U.S. accounted for more than half of the EIA's downward revision to 2005 oil demand. In fact, the EIA said it now expects U.S. oil demand to contract this year by nearly a full percentage point -- a huge swing for a market that typically grows by just 1.5% a year.
"Average demand for the first half of 2005 was at about the same level as during the first half of 2004 because rapidly rising prices constrained motor gasoline demand growth, weather factors depressed heating oil demand, and relative price factors lowered residual fuel oil and propane demand," the EIA said in its outlook. "Hurricane-related disruptions combined with increased prices result in a lower projected demand for petroleum products relative to pre-hurricane predictions."
The EIA now expects world oil demand to grow by just 1.2 million barrels a day this year, down from a previously forecast 1.7 million barrels a day. The EIA expects demand to rebound next year, both in the U.S. and the world. Demand will be growing from a lower base, so the outright level won't get as high, but the EIA projects stronger growth. The EIA's latest report forecasts world oil demand growth of 1.9 million barrels a day next year, or 2.2%, slightly faster than the 1.8 million barrels a day seen for this year. U.S. demand is also seen growing by 2.2% next year -- up 460,000 barrels a day, compared with a previous forecast of just 330,000 barrels a day.
Paying More for Heat
The Energy Department said natural-gas users can expect to pay an average of $350 more during the coming winter, compared with last year, an increase of 48%. Those who heat their homes with fuel oil will pay $378 more, or 32% higher than last winter. Propane users can expect a percentage jump in their bills similar to those of fuel-oil users.
In its winter fuels outlook report, the EIA assumed a normal winter and steady progress in restoring oil and natural-gas production and refinery output from the damage inflicted by hurricanes Katrina and Rita. "Should colder weather prevail, expenditures will be significantly higher," the EIA said.
The agency and the natural-gas industry say heating costs could vary widely among regions. A month ago, the EIA said natural-gas prices could jump as much as 71% in the Midwest, where 4-of-5 homes are heated by gas. It made no such specific assessment this time, but acknowledged that a colder-than-normal winter in the Midwest would produce significantly higher costs.
The EIA expects continued recovery of the energy system in the Gulf region in the coming months. But the agency expects a third of the Gulf's crude oil and a fifth of its natural gas to remain shut-in into December.
It also projected wholesale natural-gas prices would stay at about $12 per thousand cubic feet through the winter heavy demand period, twice what it cost last winter.
More than half of all U.S. households heat with natural gas. But many of those who rely on electric heat, nearly a third of the country, may also see bills go up because many power plants run on natural gas. And users of fuel oil -- more than half the households in New England -- are expected to see their costs jump by a third or more over last winter, according to industry and government estimates. The cost of fuel accounts for about 70% of the price utilities charge retail residential customers, according to the American Gas Association.
"We have never had prices so high and increase so quickly," said Mark Wolfe, executive director of the National Energy Assistance Directors Association, which represents the state agencies that distribute money to help low-income families pay their fuel bills. This winter, Mr. Wolfe expects more than a million additional applicants for the government program, a 20% increase over last year, with not enough money to go around. Congress provided $2.2 billion for the program, known as Liheap, last year. Mr. Wolfe said $5.1 billion is needed to keep pace this coming winter with the soaring energy costs and expanded demand.
Meanwhile, U.S. government forecasters said Wednesday they expect warmer-than-normal temperatures this winter across much of the country, though the outlook for energy-consuming regions, including the Midwest and East Coast, is less certain. The winter outlook, released by the National Oceanic and Atmospheric Administration, sees warmer-than-normal temperatures across much of the central and western U.S., including Alaska and Hawaii, while the Midwest, Southern California coast and East Coast have equal chances of warmer, cooler or near-normal temperatures this winter.
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