# Presentation: 520550

## Have Oil Prices

***Have Oil Prices***

***Headed South***

***for the***

***Winter?***

**John Cook**
**Director, EIA Petroleum Division**
**New York Energy Forum**
**September 5, 2006**

***Another Bull Market Consolidation or***

## Strong Global Demand

**Strong Global Demand**

**Weather/ Hurricane Effects**

**Geopolitical Concerns**

**Limited Spare Capacity**

**Low Forward Cover**

**Solid Economic Growth**

## WTI Crude Oil Price: 1998-2007

**WTI Crude Oil Price: 1998-2007**

**Sources: History:  EIA;  Projections: Short-Term Energy Outlook, August 2006. **

## WTI Futures Curves:  The Deferred Price Has Also Increased in Recent Years

**WTI Futures Curves:  The Deferred Price Has Also Increased in Recent Years**

**Source: New York Mercantile Exchange. **

**8/31/2006**

**8/31/2005**

**8/31/2004**

**8/29/2003**

**8/30/2002**

## World Oil Demand Growth

**Oil demand **
**growth, **
**million bbl/d**

**World oil demand, million bbl/d**

**Source: EIA, Short-Term Energy Outlook, August 2006.**

## Growth in World Consumption &Non-OPEC Production

- **Includes OPEC non-crude production, MMBD= million barrels per day*

**Growth in World Consumption &****Non-OPEC Production**

**Demand growth exceeds**
** ****non-OPEC supply growth**

**Forecast**

**MMBD change from previous year**

**$ Per barrel change from previous year**

**Source: EIA, Short-Term Energy Outlook, August 2006.**

## Recent Non-OPEC Supply Growth Is Mostly from Former Soviet Union (FSU) Countries

**Source: EIA, Short-Term Energy Outlook, August 2006.**

## Will OPEC Keep Markets Adequately Supplied?

**History**

**Projections**

**Sources: History:  EIA;  Projections: Short-Term Energy Outlook, August 2006.**

## OECD Total Commercial Oil Stocks Above Average Levels This Year

**OECD Total Commercial Oil Stocks Above Average Levels This Year**

**Source:  International Energy Agency database, August 2006.**

## But OECD Total Commercial Oil Stocks Low in Terms of Days Supply

**But OECD Total Commercial Oil Stocks Low in Terms of Days Supply**

**Source:  International Energy Agency database, August 2006.**

## OECD Total Commercial Petroleum Product  Stocks Are About Average in Absolute Levels

**OECD Total Commercial Petroleum Product  Stocks Are About Average in Absolute Levels**

**Source:  International Energy Agency database, August 2006.**

## OECD Total Commercial Petroleum Product Stocks Are Low in Terms of Days Supply

**OECD Total Commercial Petroleum Product Stocks Are Low in Terms of Days Supply**

**Source:  International Energy Agency database, August 2006.**

## As Spare Capacity Increases in 2006 and 2007, OECD Days Supply Will Fall

**As Spare Capacity Increases in 2006 and 2007, OECD Days Supply Will Fall**

**Sources: WTI:  Reuters; OECD Days Supply:  International Energy Agency;  World Excess Production Capacity:  U.S. Energy Information Administration estimates. **

## During Mid 1990’s, Surplus Capacity Did Not Affect Price

**Source: Reuters WTI; EIA Calculations**

## In Recent Years, Available Crude Capacity Affected Price

**Source: Reuters WTI; EIA Calculations**

## WTI Crude Oil Price / Inventory Relationship

**WTI Crude Oil Price / Inventory Relationship**

**Sources: Reuters database and International Energy Agency database, August 2006.**

## OECD Inventories and Spare Production Capacity Have Explained Most of Recent Price Variation

**Source: Reuters spot prices, EIA modeling.**

## U.S. Refining Capacity Surplus Disappearing, Creating Short-Term Challenge

**Gross Inputs**

**Operable Capacity**

**Source: U.S. Energy Information Administration.**

## Capacity Surplus Varies Seasonally

**Gross Inputs**

**Operable Capacity**

**Seasonal Squeezes**

**Source: U.S. Energy Information Administration.**

## Seasonal Crude Use Down In Fall Worldwide

**Source:  BP World Statistics 2005.**

## Initially, Other Regions Help Balance U.S Losses

**Source:  International Energy Agency database, August 2006, EIA Data**

## Gasoline Imports Are An Increasingly Important Supply Source

**Gasoline Imports Are An Increasingly Important Supply Source**

**Source: U.S. Energy Information Administration.**

## U.S. Four-Week Average Finished Gasoline Demand Begins to Show More Typical Growth

**Source: EIA *****Weekly Petroleum Status Report*****.**

## U.S. Four-Week Average Finished Gasoline Demand Begins to Show More Typical Growth

**Source: EIA *****Weekly Petroleum Status Report*****.**

## U.S.  Four-Week Average Diesel Demand Has Returned to Pre-Hurricane Growth

**Source: EIA *****Weekly Petroleum Status Report*****.**

## U.S.  Four-Week Average Diesel Demand Has Returned to Pre-Hurricane Growth

**Source: EIA *****Weekly Petroleum Status Report*****.**

## Chinese Oil Demand Continues Strong Growth

**Sources: History:  EIA;  Projections: Short-Term Energy Outlook, August 2006.**

## Much of China’s Oil Demand Growth in Last 2 Years Has Come From Gasoline and Diesel

**Source:  BP World Statistics 2005.**

## Trans-Atlantic Arbitrage Brings Higher Distillate Imports

**Source:  EIA *****Weekly Petroleum Status Report*****.**

## OECD European Commercial Distillate Stocks Lie in the Upper Half of the Average Range

**OECD European Commercial Distillate Stocks Lie in the Upper Half of the Average Range**

**Source:  International Energy Agency database, August 2006.**

## OECD European Commercial Distillate StocksAre Relatively Low in Terms of Days Supply

**OECD European Commercial Distillate Stocks****Are Relatively Low in Terms of Days Supply**

**Source:  International Energy Agency database, August 2006.**

## Conclusions

**World oil demand growth, while off 2004 highs, is expected to continue at relatively high rates in 2006 and 2007.**
**Non-OPEC oil supply is expected to grow by less than world oil demand in both 2006 and 2007.**
**This will require either:**
**More OPEC production, limiting any increase in spare production capacity, or**
**Larger inventory drawdowns, sustaining relatively low stocks on a days supply basis.**
**Global strength in distillate demand may mean a jump in U.S. spot prices to attract necessary imports this winter.**** **
**Thus, oil markets are expected to remain tight this winter, with oil prices likely recovering from current relative seasonal softness.**

- For job opportunities at EIA, go to _[http://tonto.eia.doe.gov/jobs/jobs3.asp](http://tonto.eia.doe.gov/jobs/jobs3.asp)__ or contact Dr. John Cook at __[john.cook@eia.doe.gov](mailto:john.cook@eia.doe.gov)__ or (202) 586-5986_