Oil price futures pare losses after EIA data




United States (U.S.) crude oil price futures pared losses yesterday, immediately after government report showed that crude stocks last week rose less than an industry inventory report released late Tuesday.


The U.S. Energy Information’s inventory report also showed gasoline stocks fell near expectations and that crude oil stocks at the Cushing, Oklahoma, delivery hub fell.On the New York Mercantile Exchange at 10:37 a.m. EDT (1437 GMT), front-month August crude was down $2, or 2.57 per cent, at $75.85 a barrel, trading from $75.17 to $77.83. Prices were about $2.45 lower when the EIA report hit.


The International Energy Agency (IEA) has gone way out on a limb on its latest crude oil price report and forecast that demand will increase by as much as 1.4 per cent (1.2 million b/d) by 2015 and that a barrel of crude will cost an average of $86, up 11.7 per cent from the current price of $77/b. That puts total global consumption at 92 million b/d, up from about 86.5 million b/d yesterday.The IEA’s estimate assumes global GDP growth of 4.5 per cent from this year forward coupled with a drop in oil use intensity of three per cent per year. 


Oil use intensity measures demand growth as a percentage of economic growth. Intensity is currently falling by about two per cent yearly, mostly as a result of reduced demand in developed countries and slower rates of demand growth in developing countries.If this scenario is correct, oil demand will once again reach 2007 levels. The IEA also projected a lower GDP scenario, in which global GDP grows by three per cent yearly. In this scenario, global oil demand reaches 90 million b/d by 2015. Demand growth in developing countries will lead to non-OECD nations accounting for 52 per cent of world oil use by 2015, up from 47 per cent yesterday.


In either case the agency raised its supply forecast for 2015 to 96.5 million b/d. Thus, in either scenario, there is some spare capacity in the global ability to produce crude. The IEA supply projection is based on both lower demand and new projects coming on line between now and 2015.Still on the supply side, non Oil Producing and Exporting Countries are expected to produce 1.6 per cent more crude oil in 2015 than they did in 2009. The impact of the blown-out well in the the Gulf of Mexico could lead to delays in drilling for new supply and could reduce output by as much as 300,000 b/d.


Interestingly, yesterday’s futures prices for WTI benchmark crude for December 2014 and December 2015 are $86.88 and $88.30, respectively, providing some independent, market-based backing for IEA’s projections.The IEA also noted that the U.S. has become the world’s leading producer of natural gas, mainly as a result of new drilling in the various shale gas plays and the initial high rates of production on these wells. As long as the oversupply of natural gas remains, prices will remain depressed. The IEA sees the natural gas surplus lasting beyond 2013 in some areas.The IEA report is not earth-shaking, but it does point to continuing, albeit slower, supply and price growth through the next five years. This is what passes for good economic news these days.





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