Short-Term Energy Outlook

Highlights

• The current U.S. and global economic downturn has led to a decrease in global energy demand and a rapid and substantial reduction in crude oil and other energy prices.  As a result, projections for both energy demand and prices are considerably lower than last month’s Outlook.

• The monthly average price of West Texas Intermediate (WTI) crude oil fell from over $133 per barrel in July to about $77 per barrel in October, indicative of the abrupt decline in world petroleum demand growth.  The annual average WTI price is now projected to be $101.45 per barrel in 2008 and $63.50 in 2009.

• The average U.S. prices for regular-grade gasoline and diesel fuel, at $2.22 and $2.94 per gallon respectively on November 10, were both more than $1.80 per gallon below their highs in mid-July.  With a weak economy continuing through most of 2009, along with lower projected crude oil prices, the annual average retail gasoline and diesel prices in 2009 are projected to be $2.37 and $2.73 per gallon, respectively.

• Residential heating oil prices during the current heating season (October though March) are projected to average $2.75 per gallon, a reduction of about 17 percent from the 2007-2008 heating season.  Residential propane prices are projected to average $2.22 this winter, a decrease of 10 percent from last winter.  Residential natural gas prices are projected to average $13.02 per thousand cubic feet (Mcf), an increase of 2 percent from last winter.

• The impact of the economic downturn on demand is also lowering current and expected natural gas prices. The Henry Hub natural gas spot price is projected to average $9.27 per Mcf in 2008.  The projected 2009 annual average Henry Hub price is $6.82 per Mcf compared with $8.17 in the previous Outlook.

Economic Outlook

The recent dramatic deterioration in the outlook for economic growth in the United States and the rest of the world has led to a significant reduction in this Outlook’s assumptions for world economic growth and projections of energy demand and prices.  World real gross domestic product (GDP) growth is projected to slow from about 4 percent in 2006 and 2007 to about 2.5 percent this year and 1.8 percent in 2009.  Last month’s Outlook assumed world GDP would increase by 3.0 percent in 2008 and by 2.8 percent in 2009.  Previous lows for world economic growth were 0.3 percent in 1982, 1.7 percent in 1993, and 1.5 percent in 2001.

The year-over-year changes in U.S. real GDP in last month’s Outlook were 1.8 percent growth in 2008 and 0.8 percent growth in 2009.  U.S. real GDP growth in the current Outlook has been lowered to 1.3 percent for 2008 and is projected to decline by 1.4 percent in 2009.  The 2009 average unemployment rate has been raised from 6.2 percent to 7.9 percent in this forecast.  The U.S. manufacturing production index was lowered by 1.1 percent and 7.0 percent for 2008 and 2009, respectively, with the 2009 growth rate of the index falling from a positive 0.5 percent (growth) to negative 5.5 percent (decline).

Global Petroleum

Overview
Rising prices, especially the high oil prices in the first half of 2008, and slowing global economic growth have caused oil demand growth to slow dramatically.  The recent announcement by the Organization of the Petroleum Exporting Countries (OPEC) to lower its production target by 1.5 million barrels per day (bbl/d), effective November 1, is aimed at offsetting this lower oil demand and stabilizing prices at or above recent levels.  OPEC members plan to meet again in Algeria on December 17 to review market conditions.

Future price levels will primarily depend on the magnitude and duration of the economic downturn as well as OPEC and non-OPEC behavior.  Our current expectation of future oil prices assumes that the OPEC production cut may limit, but not reverse, the recent sharp fall in oil prices.  We project oil prices to remain relatively flat, averaging $60 to $65 per barrel throughout 2009.  The condition of the global economy is expected to remain the most important factor driving world oil prices.

Consumption.  World oil consumption is projected to increase by almost 100,000 bbl/d in 2008 and to remain virtually flat in 2009.  In both years, growth in countries outside of the Organization for Economic Cooperation and Development (OECD)— especially China, Latin America, and oil-exporters in the Middle East—offset projected sharp declines in oil consumption in OECD countries (World Oil Consumption).  Between 2007 and 2009, non-OECD oil consumption is projected to rise by 2.3 million bbl/d compared with a decline of 2.2 million bbl/d in the OECD.  We expect economic growth in non-OECD countries not to fall as precipitously as in the OECD countries, with the non-OECD countries maintaining modest oil demand growth. 

Non-OPEC Supply.  Non-OPEC supply is expected to decline in 2008, but growth should return in 2009 because of projects currently near completion.  EIA expects non-OPEC supply to fall by 280,000 bbl/d in 2008.  A combination of factors contributed to the decline in 2008, including project delays and large supply disruptions in Central Asia and the Gulf of Mexico.  EIA projects that non-OPEC supply will grow by 500,000 bbl/d in 2009, with the largest sources of growth coming from the United States, Azerbaijan, and Brazil.  In the United States, production of petroleum and other liquids is expected to rise by 450,000 bbl/d in 2009 because of the start-up of several offshore crude oil production platforms, recovery from hurricane-induced shut-ins, and continuing growth in fuel ethanol production.

Non-OPEC supply growth is at continual risk to unexpected disruptions or project delays, but the global economic slowdown brings additional difficulties as well. Lower oil prices bring into doubt the viability of some high-cost non-OPEC projects.  If problems in global financial markets lead to delayed investment in existing and new oil fields, then even a short-lived economic downturn could have longer-term ramifications for world oil supply.  This would heighten the risk of a return to a tight supply situation once the world economy (and thereby oil demand growth) recovers.

OPEC Supply.  OPEC decided at its October meeting to cut its crude oil production targets by 1.5 million bbl/d in response to the global economic slowdown, weakening oil demand, falling oil prices, and in anticipation of rising non-OPEC supplies. The extent of actual OPEC compliance to its new production target is uncertain.  This Outlook assumes that the recent sharp decline in oil prices will lead to compliance that is above historical levels.  EIA projects that OPEC crude oil production will fall from 32.3 million bbl/d in October 2008 to 31.3 million bbl/d in the first quarter of 2009, where it will remain relatively stable through the end of 2009.  This represents a decline of 1 million bbl/d from October 2008 production levels, or about 70 percent of the announced cut.  Last month’s assessment already had a 600,000-bbl/d reduction in OPEC crude production over this period, so the new estimate represents an additional 400,000-bbl/d cut from last month’s Outlook.

Lower crude oil production, combined with planned increases in OPEC production capacity, suggests OPEC surplus production capacity could increase from 1.6 million bbl/d in the second quarter of 2008 to nearly 4 million bbl/d by the end of next year (OPEC Surplus Oil Production Capacity).  Although it is possible that weak market conditions could delay some of these capacity expansion plans, EIA expects OPEC surplus production capacity to rise above 3 million bbl/d next year for the first time since 2003, which would provide Saudi decision makers with a cushion large enough to provide a capability to dampen the impact of future disruptions or geopolitical uncertainties on oil prices.

Inventories.  Revised data indicate that OECD commercial inventories rose by 400,000 bbl/d in the second quarter of 2008, or at about half of the historic level of inventory build rate during this time of year.  OECD commercial inventories stood at 2.6 billion barrels at mid-year, or 56 days of forward consumption cover.  On the basis of days of forward cover, OECD commercial inventories are well above historic levels, and EIA projects that they will remain there through the end of 2009 (Days of Supply of OECD Commercial Stocks).

Crude closes below $60/bbl in NY market

HOUSTON, Nov. 12 -- Oil prices fell 5% Nov. 11, closing below the previous support level of $60/bbl on the New York market, as the US dollar rallied against a basket of currencies, and economic fears discouraged investment in riskier assets.

Now that the $60/bbl bottom has been broken, "there will be a push to force the Organization of Petroleum Exporting Countries into more oil production cuts until Asia reduces the output of petroleum products being sent to the rest of the world," said Olivier Jakob at Petromatrix, Zug, Switzerland. The reformulated blend stock for oxygenate blending (RBOB) crack "has improved on the crude oil correction, but more refinery run cuts will be needed to balance the global product supply and demand," he said.

Moreover, Jakob said, "[T]he relationship of current prices and current volatility will be hard to sustain. Hence, either the current (or lower) prices are a fair value but in that case volatility will have to come off; or if volatility stays the same, a downside overshoot is likely to be met by a V-shape recovery. Between low prices and high volatility, one of the two will have to capitulate."

In the Houston office of Raymond James & Associates Inc., analysts said oil prices were down in premarket trading Nov. 12, "continuing [a] downward trend due to a strengthening dollar and weaker energy demand more than offsetting news of potential supply reductions." They said, "Yesterday, an OPEC source noted that supplies could be cut by an additional 1 million b/d when OPEC meets in Algeria next month.

Global Warming and the Price of a Gallon of Gas

by John Coleman 2008

John Coleman is the founder of the Weather Channel

You may want to give credit where credit is due to Al Gore and his global warming campaign the next time you fill your car with gasoline, because there is a direct connection between Global Warming and four dollar a gallon gas. It is shocking, but true, to learn that the entire Global Warming frenzy is based on the environmentalist’s attack on fossil fuels, particularly gasoline. All this big time science, international meetings, thick research papers, dire threats for the future; all of it, comes down to their claim that the carbon dioxide in the exhaust from your car and in the smoke stacks from our power plants is destroying the climate of planet Earth. What an amazing fraud; what a scam.

The future of our civilization lies in the balance.

That’s the battle cry of the High Priest of Global Warming Al Gore and his fellow, agenda driven disciples as they predict a calamitous outcome from anthropogenic global warming. According to Mr. Gore the polar ice caps will collapse and melt and sea levels will rise 20 feet inundating the coastal cities making 100 million of us refugees. Vice President Gore tells us numerous Pacific islands will be totally submerged and uninhabitable. He tells us global warming will disrupt the circulation of the ocean waters, dramatically changing climates, throwing the world food supply into chaos. He tells us global warming will turn hurricanes into super storms, produce droughts, wipe out the polar bears and result in bleaching of coral reefs. He tells us tropical diseases will spread to mid latitudes and heat waves will kill tens of thousands. He preaches to us that we must change our lives and eliminate fossil fuels or face the dire consequences. The future of our civilization is in the balance.

With a preacher’s zeal, Mr. Gore sets out to strike terror into us and our children and make us feel we are all complicity in the potential demise of the planet.

Newt Gingrich is pushing his Drill Here. Drill Now. solution as gas prices go up.

It is a great idea. Along those lines, here is some information that really reflects the differences between the Republicans and Democrats in the U.S. House -- and why winning back the House is important.

In a breakdown of top energy issues, you'll find the GOP is in favor of more options for energy than the Democrats.

ANWR Exploration
House Republicans: 91% Supported
House Democrats: 86% Opposed

Coal-to-Liquid
House Republicans: 97% Supported
House Democrats: 78% Opposed

Oil Shale Exploration
House Republicans: 90% Supported
House Democrats: 86% Opposed

Outer Continental Shelf (OCS) Exploration
House Republicans: 81% Supported
House Democrats: 83% Opposed

Refinery Increased Capacity
House Republicans: 97% Supported
House Democrats: 96% Opposed

That's startling information. Look at that again. Put another way, the Republicans are opposed to grinding our economy to a halt due to soaring energy costs and the Democrats are in favor of shutting down our economy and way of life.

Why are the Democrats so in favor of shutting down the American economy? Because they've become wedded to an entrenched group of radical environmentalists who see the United States as the greatest threat to the earth.

The Democrats want the United States to fall behind because they see it as the only real way to, as Barack Obama said, let the earth "heal" and "the oceans … recede." The only way to save the planet is to humble America, apparently.

No wonder so many radicals and terrorists like Obama. The whole party is eaten up with anti-American sentiments.