U.S. Boosts 2011 Oil Forecast on Economic Outlook

(Updates with closing price in fifth paragraph. Adds Ghanem comment in 19th paragraph.)

Oct. 13 (Bloomberg) -- The U.S. increased its crude-oil price forecast for 2011 by $1 a barrel on projections that global economic growth will lead to higher demand and that inventories in industrialized nations will decline.

West Texas Intermediate oil, the U.S. benchmark grade, will average $83 a barrel next year, up from a September forecast of $82, according to the Energy Department’s monthly Short-Term Energy Outlook. The estimate includes an assumption that OPEC will boost its output as prices rise, tempering a bigger gain.

Oil will climb 6.5 percent in 2011 from a projected average of $77.97 this year, the department said. The 2010 figure increased 60 cents from last month and reflects a 26 percent advance from the 2009 average of $61.66 a barrel. Crude has averaged $77.90 a barrel so far this year in New York.

“World oil prices are expected to rise gradually as global economic growth leads to higher global oil demand and growth in non-OPEC supply slows in 2011,” according to the forecast by the Energy Information Administration, the department’s statistical arm.

Oil for November delivery rose $1.34, or 1.6 percent, to settle at $83.01 a barrel on the New York Mercantile Exchange, the highest level in a week. Futures have gained 4.6 percent this year.

U.S. Economy

U.S. gross domestic product will grow 2.6 percent this year and 2.1 percent in 2011, down from projections of 2.8 percent and 2.3 percent a month ago, according to the report.

U.S. households will spend an average of $986 between October and March to heat their homes, an increase of $24, or 2.5 percent, from last winter, EIA projected today in its Winter Fuels Outlook.

The department raised its forecast for global oil consumption this year to 86.06 million barrels a day from 85.95 million last month. That’s up 2.1 percent from last year’s 84.33 million. Demand will climb to 87.44 million in 2011, 80,000 barrels a day higher than last month’s projection.

U.S. oil use will average 18.97 million barrels a day this year, up 200,000 barrels from 2009. This year’s forecast increased 40,000 barrels from the September estimate. Consumption will climb 110,000 barrels to 19.08 million in 2011, according to the report.

OPEC Output

The 12 members of the Organization of Petroleum Exporting Countries produced an average 29.49 million barrels a day in the third quarter, up 0.4 percent from the second quarter, the report showed.

The figure was 29.41 million barrels for September, down from a revised 29.55 million the month before. The August total was the highest monthly rate since December 2008, the month before the final round of OPEC production cuts went into effect. The Energy Department put August output at 29.46 million in last month’s report.

OPEC agreed to a record 4.2-million-barrel-a-day production cut in late 2008 as global demand fell 0.6 percent, the first decline since 1983. Members are now adhering to about 54 percent of that cut, according to an estimate today from the International Energy Agency.

OPEC production will “increase over the next year or two” in response to higher economic growth, EIA Administrator Richard Newell said today at a press conference in Washington. Higher OPEC output “should keep prices from rising dramatically.”

Production Targets

OPEC oil ministers signaled that they won’t alter their existing output targets when they meet tomorrow in Vienna.

The oil market is “well balanced,” Saudi Arabian Oil Minister Ali al-Naimi said Oct. 12 when he arrived in Vienna. He called prices between $70 and $80 a barrel “ideal.”

OPEC has raised output by 5 percent from a five-year low reached in March 2009 and now exceeds its own target by 1.9 million barrels a day, about the same amount as Angola produces. Production was 29.1 million barrels a day last month, based on Bloomberg News estimates.

“All the ministers agree that we should leave the level of production stable,” Rafael Ramirez, Venezuela’s energy and oil minister, said today in Vienna. “We’re hoping to maintain the price and to increase that a little bit to between $90 and $100 a barrel.”

Oil prices “could be significantly higher” from today’s forecast if OPEC doesn’t increase production as global consumption recovers, the EIA report said.

Libya’s top oil official said he would like to see an oil price of $100 a barrel by the end of the year. Shokri Ghanem, chairman of Libya’s National Oil Corp., also called on OPEC members to comply with the group’s quotas.

IEA Forecast

The IEA also increased its demand outlook today. It raised both its 2010 and 2011 forecasts for worldwide crude use by 300,000 barrels a day amid signs of “apparently resurgent” demand in the U.S., Germany and Japan in the last quarter.

Global crude consumption will average 86.9 million barrels a day in 2010 and 88.2 million barrels a day in 2011, the Paris- based energy advisory agency said in its monthly Oil Market Report.

OPEC yesterday raised its forecast for 2010 global oil demand by 100,000 barrels a day to 85.59 million. That compares with 84.46 million last year. It said demand will climb to 86.64 million barrels a day next year.

--With assistance from Simon Lomax in Washington, Fred Pals in Vienna and Fiona MacDonald in Kuwait. Editors: Joe Link, David Marino
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

Oil slides to near $86 amid Europe, China jitters

BANGKOK – Oil prices tumbled to near $86 a barrel Friday in Asia as investors shifted from commodities to the dollar amid renewed fears about a debt crisis in Europe and slowing growth in China.
Benchmark oil for December delivery was down $1.59 to $86.22 a barrel at late afternoon Bangkok time in electronic trading on the New York Mercantile Exchange.
The contract settled unchanged at $87.81 on Thursday after earlier hitting a two-year high on news that U.S. crude and gasoline stockpiles declined last week in a sign of improving demand for fuel.
Oil prices have climbed steadily in recent weeks because the dollar has weakened against other currencies. That's largely because of the Federal Reserve's decision to pour $600 billion into a bond-buying program to stimulate the U.S. economy.
But oil retreated Friday as the dollar gained against the euro, making the commodity more expensive for buyers holding that currency.
Also hitting sentiment was a plunge in Chinese stock markets on concerns Beijing will take more steps to cool economic growth after inflation hit a 25-month high in October. China is the world's largest energy consumer.
The euro was down about 0.3 percent to $1.3608, dented by mounting speculation that Ireland — one of Europe's most financially troubled countries — would not be able to cut public spending and may have to resort to a bailout. That revived fears of a wider European debt crisis.
In other Nymex trading in December contracts, heating oil fell 3 cents to $2.40 a gallon and gasoline was flat at $2.24 a gallon. Nautral gas dropped 2 cents to $3.91 per 1,000 cubic feet.
In London, Brent crude slid $1.36 to $87.74 a barrel on the ICE Futures exchange.

The U.S. No Longer Controls the Price of Oil in a Peak Oil World

Saturday, 20 March 2010 21:01

Back in the days when US oil demand controlled the price of oil, a massive recession in the United States would have sent oil to 12.00 dollars a barrel. That era, which ended last decade, was defined by ongoing spare capacity in OPEC, low-cost oil in Non-OPEC, and nascent demand for oil in the developing world. That was then, and this is now. And so it’s rather quaint that the energy analysts from that previous era still gather each week on American financial TV, to discuss the inventories at Cushing, Oklahoma. Inventories at Cushing, Oklahoma? The US has been removing discretionary demand for oil for years, starting back in 2004. And current unemployment in California is at 13.2%–another new post-war high. Yet oil is at 82.00 dollars? Get these analysts off TV. Please. We need analysis of diesel demand in Guangdong, and Uttar Pradesh. With the closing out of the decade we also have the full data set, on global crude oil production. As you can see from the chart below, the twin peaks of oil production in 2005 and 2008 reveal that while the world was able to respond to a moderate price advance coming out of 2002, nearly all of the price action above 40.00 dollars a barrel starting in late 2004 did not produce more supply. Welcome to peak oil: when the world’s remaining supply of oil is more diffuse, of lower grade, harder to extract, and is unable to flow in the aggregate at higher production levels. There is an extra measure of comedy today to our defunct and inward-looking group of oil analysts here in the States, as it was revealed that these weekly measures of US inventories are highly flawed. Well, actually, we knew that. But it’s always nice to get the proof. From tonight’s Wall Street Journal: …documents, obtained through a Freedom of Information Act request, expose several errors in the Energy Information Agency’s weekly oil report, including one in September that was large enough to cause a jump in oil prices, and a litany of problems with its data collection, including the use of ancient technology and out-of-date methodology, that make it nearly impossible for staff to detect errors…Internal emails and a report from a consulting firm prepared in September describe a process at the EIA that served the oil world well in 1983, the first year that oil futures traded, but hasn’t kept up as the inventory data have become more influential and the nation’s oil infrastructure has become more complex. The familiar names that you see on financial TV here in the US, talking about oil, are generally living in a past that no longer exists. One really has to go to London, Sydney, and Toronto to find not only the best minds in energy, but TV hosts smart and informed enough to even handle the conversation. Global oil production peaked in the 2005-2008 period and now trades at levels thought unthinkable in 2005 when unemployment levels in the OECD were half current levels, if not lower. The US no longer controls the geology or oil, or the price of oil. But, we carry on as though we will again in the future. After all, in places like California which is seeing a competitive race for the Governorship, phrases like Getting Back on Track are all the rage. By. Gregor MacDonald

China could displace US Dollar dominance

million storage facilities and how the country had a big devaluating pile of dollars.
Well, trusted sources say that China has taken the next step to woo the Arab countries and establish closer relations.
Until now, the US dollar has been used as the sole oil trading currency around the globe. But last weeks rumors started to surface that a secret meeting took place between Gulf Arab oil producers and some oil importing states trying to decide on an alternative currency to dollar for transactions. Spearheaded by China, the meeting has proposed to trade oil in a basket of currency including, the Euro, Chinese Yuan, Japanese Yen, gold and a new currency to be planned by the GCC (The Gulf Cooperation Council-Saudi Arabia, Kuwait which already went off the US dollar two years ago, Qatar, and Abu Dhabi).
But why are Arab countries lending a kind ear to China? Look no further than the U.S, invasion of Iraq. With an estimated one million Arab deaths resulting from the US invasion, anger is simmering throughout the Arab world, not just Iraq. The bad publicity gained has helped an enthusiastic China in a big way. China is in need of huge amounts of oil and the Gulf States are happy to comply with China in exchange cheap imports, military technology transfer. This pushes the US further aside from the bargaining table and reduces its influence in the Middle-East.
This scenario is far removed from the Nixon Shock of 1971, if one were to walk the lanes of history. In 1971 the then U.S. President, Nixon, cancelled the direct convertibility of the dollar to gold. During the same period Oil production in the US peaked and the country ran out of capacity to increase the production. OPEC (The Organization of the Petroleum Exporting Countries) thus steps into the picture. Nixon's move helped the US to print more dollars- as much as they needed- to buy oil from OPEC establishing direct nexus between the dollar and oil.
So, here's the bigger picture: When this dollar dominance ends, as efforts are already visible, it could well be the last shoe to drop from the US economy.

US shale oil deposits: Two trillion barrels of crude oil

Oil shale deposits.

US shale oil deposits: Two trillion barrels of crude oil By JERICAN for OIL-PRICE.NET, 2006/12/29

This may sound like a fiction story but it is true! While total world resources of oil shale are conservatively estimated at 2.6 trillion barrels, US sits on close to two trillion barrels of crude. Possibly more than all the crude than was ever produced worldwide since petroleum age began.
The Green River Shale Formation encompassing the States of Colorado, Utah and Wyoming was first discovered in 1924. This famous shale formation covers tens of thousands of square miles. It is found in three different ancient lake basins. The layers of sediment in this formation stretch undisturbed for many miles.
This shale is a soft sedimentary rock that readily fractures into layers, composed of minute particles of clay, which may easily be removed. It was formed from multi layers through erosion. There are 40 million layers in one part of this formation. Deposits within these layers are fossilized plant, animal life and algae, which has turned over millions of years into kerogen. Some claims have been made that this was formed from the Great Flood of Biblical times. Geologists say that this formation was formed through countless floods perhaps through 500 to 700 millions of years.
There are two conventional approaches to oil shale processing. In one, the shale is fractured and heated to obtain gases and liquids by wells. The second is by mining, transporting, and heating the shale to about 450oC, adding hydrogen to the resulting product, and disposing of and stabilizing the waste. Both processes use considerable water. The total energy and water requirements together with environmental and monetary costs have so far made production uneconomic. During the oil crisis of the 1970's, major oil companies spent several billion dollars in various unsuccessful attempts to commercially extract shale oil.
After initial attempts proved to be too expensive and were shelved some ten years ago, a host of energy companies are revisiting technologies to successfully extract kerogen from shale and economically turn it into crude oil. Participating giant Shell Oil representative, Terry O'Cannon states, "We try to keep them from speculating too much and keep expectations low because we don't know if this technology will be successful and viable in the long term."

US opens more areas for oil exploration

Sarah Palin is the one allied with the campaign "Drill, baby, drill", but in an inventive merger the President has laid claims for it too-very nearly. In a bold attempt to boost the domestic oil and gas production, he has opened up large offshore areas along the southern Atlantic coastline, the eastern areas of the Gulf of Mexico and northern shore of Alaska for drilling.
The U.S. has had a long-term moratorium on oil exploration for almost twenty years. The move towards more exploration is aimed to reduce oil imports, obtain more revenue from lease and licence and to whip up support for the comprehensive energy and climate legislation.
As expected there was an angry backlash from environmentalist. Detractors say the move:

Contributes to global warming with increase in pollution

Kicks in fears of chemical and oil spills

Threatens coastal communities dependent on the sea

Affects the habitat of endangered polar bears, whales and other wildlife

Will open up more areas like the west coast for oil exploration

Won't bring in energy security or reduce oil imports

"This is not a decision that I've made lightly" Mr Obama said, aware of the objection from environmentalists. "But the bottom line is this: given our energy needs, in order to sustain economic growth, produce jobs, and keep our businesses competitive, we're going to need to harness traditional sources of fuel even as we ramp up production of new sources of renewable, home-grown energy."
In the meantime, supporters of the move, for their part, see this as an attempt to decrease dependency on foreign fuel. They say, it adds jobs and brings in more energy security; that when oil is produced locally, it helps the economy with more income and demand for goods.
The announcement comes as a 'give and take' policy to garner support and momentum for a new energy and climate bill that proposes cuts in green house gases. The senate is expected to take up the climate bill shortly, almost the last chance before the mid-term elections. The bill has already been passed by the House of Representatives, and the President is hoping to get Republican support in the senate. The US Press Secretary Robert Gibbs said that the move was more to give energy support to the American people as the country was about sixty percent dependent on foreign oil, and that the proposals still weren't sure to win support from senators close to the oil industry. Republican support or not, ten Democratic senators from the coastal states have already signed a joint letter expressing opposition to the exploration.
Already the President has made major concessions on coal and nuclear power to garner support for the bill. In the announcement unveiled at Andrews Air Force Base Mr Obama had also included plans to expand the production of nuclear power to "move us from an economy that runs on fossil fuels and foreign oil to one that relies more on home-grown fuels" and clean energy. Only last month, the President had announced a $50 billion loan guarantee to build eight new nuclear power plants.
Said Mr. Obama, "While our politics has remained entrenched along worn divides, the ground has shifted beneath our feet. Around the world, countries are seeking an edge in the global marketplace by investing in new ways of producing and saving energy." Further he added, "The only way this transition will succeed is if it strengthens our economy in the short term and the long run. To fail to recognise this reality would be a mistake."
Other energy proposals include ordering of 5,000 hybrid vehicles to the federal fleet and more stringent fuel economy standards for new cars. "This rule will not only save drivers money; it will save 1.8 billion barrels of oil," Mr Obama said. "That's like taking 58 million cars off the road for an entire year."
Drilling already taking place in the western and central areas in the Gulf of Mexico would come now closer to just 125 miles from Florida. But officials said that a buffer would be put in place off the Florida shore line so that the rigs aren't visible from the land. The first drill would take place off the coast of Virginia within two years. However, it all depends on the Congress lifting the moratorium on drilling.
The administration, in effect, is thus adopting some measures put forward by President Bush, which were challenged in court on environmental basis. The Interior Department had set aside the proposal after President Obama came to power. But one notable difference from Bush's plan is exception given to the ecologically sensitive Bristol Bay in south-western Alaska, which has several endangered species of whales and fishes. The moratorium would also remain for the Pacific coast from California to Washington. Of course, the Oil companies aren't happy with the exempted areas, either.
The Interior Department says the untapped oil would meet three years of U.S. oil demands. Though at this point the oil estimates aren't clear, the reserves would be relatively smaller than the Department's estimates, and would not impact the price of oil. A clear picture will emerge only after the exploration begins. And, it will take years, anywhere between 14-16 years, before the oil is seen. For a comparison, EIA's Short-Term Energy Outlook, for March 2010 shows that domestic crude oil production averaged 5.32 million bbl/d in 2009, up about 370,000 bbl/d from 2008. The projected growth in crude oil production this year is by 210000 bbl/d.
This move for oil drilling isn't surprising as during his presidential campaign in 2008, President Obama had said that he supported expanding offshore drilling for oil and gas. A senior counsel at the Center for Biological Diversity, Brendan Cummings, said the announcement was "all too typical of what we have seen so far from President Obama - promises of change, a year of 'deliberation,' and ultimately, adoption of flawed and outdated Bush policies as his own".

If not oil, then what?

In fact, the US is the third largest crude producer in the world, but imports almost 57 percent of the oil it needs. The top fifteen countries in the list of crude oil imports to the US last year were, are Canada, Mexico, Nigeria, Saudi Arabia, Venezuela, Algeria, Iraq, Angola, Brazil, Colombia, Russia, Kuwait, Azerbaijan, Congo, and Ecuador.
According to EIA, there is substantial decline in production from oil fields in the federal Gulf of Mexico and Alaska. Further, the US liquid fuel consumption was a staggering 18.7 million bbl/d in 2009 even when it declined by 810000 bbl/d to previous years.
So, there is need for oil and do we have an alternative at present? The pill is bitter to swallow but the answer is 'no'. To limit the opposition to oil drilling in the U.S. alone is to see a small picture of the whole problem. Oil drilling wherever it's done (not only in the U.S., which has better resources to tackle problems of the kind) could cause ecological damage, whatever precautions taken. The proposed explorations will not markedly reduce the dependency on foreign oil. Neither are they 'the' solution for the energy needs.
Hence, what's to be done is to decrease the dependency on oil. Small but significant steps are the need for the hour with increased investments in safe and clean renewable sources of energy. This announcement, at best, is just a temporary measure, whichever way you think.