US, world face lower oil demand growth to June: EIA
By Tom Doggett
WASHINGTON (Reuters) – U.S. and world oil demand will be
lower than expected through June as petroleum prices stay high,
the government’s top energy forecasting agency said on Tuesday.
The projections of lower demand, particularly for the
second quarter, come as OPEC ministers meet in Vienna this week
to review their production policies and could justify concerns
of some cartel members that output needs to be cut at some
point in the coming months to prevent a drop in crude prices.
The U.S. Energy Information Administration revised down its
forecast for global oil demand growth by 100,000 barrels per
day (bpd) for both the current quarter and the second quarter,
with consumption averaging 84.9 million bpd and 83.7 million
bpd, respectively,
The United States, which is the world’s largest oil user
and OPEC’s biggest customer, accounts for much of that
reduction due to an expected drop in residual fuel demand.
The EIA now sees the growth in U.S. oil demand down 40,000
bpd for the January-March period and down 90,000 bpd over
Apil-June.
The slowdown in the second quarter reflects expected
shutdowns of U.S. refineries for routine maintenance, which
will cut crude runs and the production of residual fuel, which
is the last product made from a barrel of oil and used by ships
for fuel, according to EIA analyst Tancred Lidderdale.
“With the higher (refinery) turnaround schedule, the lower
crude runs we have in the forecast, that essentially reduces
that residual fuel oil supply,” he said.
As a result, ships will get their fuel in overseas ports
where more residual supplies are available, moving demand out
of the United States, he said.
Total U.S. oil demand should average 20.63 million bpd in
the first quarter and 20.82 million in the second quarter, the
EIA said.
So while global oil demand will be lower in the second
quarter compared to the first quarter, which is normal, demand
in the United States will be unusually higher in the second
quarter than in the current quarter.
That’s because record warm U.S. temperatures in January
slashed demand for heating fuels in the first quarter. “It’s
the weather effect,” Lidderdale said.
Energy prices are forecast to stay high, which could also
account for some of the dampening in demand growth.
U.S. crude oil prices are expected to average $64 a barrel
this year and $61 in 2007, the EIA said.
The retail gasoline price, which this week averaged $2.33 a
gallon, is forecast to rise above $2.50 during the early summer
months, the agency said.
The price for a gallon of regular unleaded gasoline should
average $2.42 this year, up 15 cents from last year, and then
average $2.36 in 2007, the EIA said.
Even though global demand will be lower than previously
forecast, OPEC ministers are expected to decide to keep oil
production steady at this week’s meeting, finding it difficult
to justify an output cut with petroleum prices so high.
The oil minister for OPEC member Kuwait said on Tuesday he
thinks the cartel “truly believes that there will be oversupply
in the market in the next quarter but because of the price
factor and because of the geopolitical factors we believe we
will continue to maintain the current production.”
The drop in demand will help build U.S. petroleum
inventories. The EIA said gasoline stocks, which are at the
highest level in almost seven years, will be 9 million barrels
higher than it previously forecast for the end of March and
should reach 215 million barrels.
While high petroleum inventories would usually keep prices
low, this is not the case at the moment, because refiners are
keeping those stocks in reserve as a cushion against possible
supply disruptions due to new U.S. fuel specifications and
geopolitical tensions in OPEC countries like Saudi Arabia,
Venezuela, Nigeria, Iran and Iraq, Lidderdale said.
“Those high (U.S.) inventories may not necessarily be
available for sale…if you’ve got a situation of supply
uncertainty,” he said.