The significant crude oil price increases of the last 2 months are the result of increasingly tighter world oil markets. In May, the refiner acquisition cost (RAC) for crude oil averaged $61.60 per barrel. By August, the average monthly RAC price is projected to be $73.50 per barrel.
The annual average RAC price is expected to increase from $60.23 per barrel in 2006 to $64.86 per barrel in 2007 and to $68.75 per barrel in 2008. West Texas Intermediate (WTI) crude oil prices are projected to average $67.60 per barrel for 2007 and $71.25 per barrel in 2008.
- As of August 6, retail motor gasoline prices have fallen by almost 40 cents per gallon from the spring peak of $3.22 per gallon on May 21, even as the price of WTI crude oil has risen by over $9 per barrel (22 cents per gallon) over the same period. The exceptionally high refiner margins that were the result of numerous refinery problems earlier in the year have eased considerably. Gasoline prices at the pump are projected to continue to decline through the end of 2007 and then begin their seasonal increase next spring.
The Henry Hub natural gas spot price is expected to average $7.45 per thousand cubic feet (mcf) in 2007, a $0.52-per-mcf increase from the 2006 average, and to average $8.06 per mcf in 2008.
Natural Gas Markets
Consumption. On an annual basis, total natural gas consumption is expected to rise by 4 percent in 2007 and 1.3 percent in 2008 (Total U.S. Natural Gas Consumption Growth). In annual terms, EIA projects increased consumption of natural-gas-fired in the electric power sector in 2007, rising 4.8 percent over 2006. In 2007, the residential and commercial sectors are expected to show annual growth of 10.5 and 7.5 percent, respectively, because of the projected return to normal winter weather, while industrial sector consumption is expected to decline by 1.5 percent.
Production and Imports. Growth in onshore production continues to offset declines in production from the Gulf of Mexico. Through the first half of 2007, year-over-year Federal Gulf production has declined about 2.3 percent. Conversely, production over this same period in the Lower-48 onshore region has increased by 3.1 percent. On an annual basis, Gulf production is expected to decline by 4.2 percent in 2007 while Lower-48 onshore production is expected to rise by 1.6 percent. EIA projects a total hurricane-induced outage of 81 billion cubic feet (bcf) for the Gulf of Mexico (down from 85 bcf projected in the last Outlook). Total U.S. dry natural gas production is expected to rise 0.8 percent in 2007 and 1.5 percent in 2008.
Imports of liquefied natural gas (LNG) for the first half of 2007 totaled 460 Bcf, about 53 percent more than the comparable period in 2006. For the remainder of the year EIA is forecasting a decline in LNG imports as more cargoes are expected to be directed to European and Asian markets. In Europe, market prices in recent weeks have risen from relatively lower levels earlier this year and are now more competitive with U.S. market prices. Total LNG imports in 2007 are still expected to reach 850 bcf, which would be a record high.
Inventories. On July 27, 2007, working natural gas in storage was 2,840 bcf (U.S. Working Natural Gas in Storage). Strong injections in July pushed current stocks over year-ago levels for the first time since EIA’s storage report for January 27, 2007. Current inventories are now 410 bcf above the 5-year average from 2002 to 2006, and 68 bcf above the level from the corresponding week last year.
Prices. Current spot prices at the Henry Hub reflect an inactive hurricane season thus far in the Gulf, storage inventories that recently surpassed the corresponding level of a year ago, and mild summer weather in the West South Central region (which represents about one-third of the electric power sector’s total natural gas demand). As a result, the average monthly spot price has declined for 3 consecutive months (May, June, and July). However, the hurricane season runs through November 30, and current price projections remain vulnerable to potential storm-induced supply disruptions during that period. Taking into account EIA’s current assumption about hurricanes, the Henry Hub spot price is expected to average $6.66 per mcf in the third quarter and $7.96 per mcf in the fourth quarter. For the year, the Henry Hub spot price is expected to average about $7.45 per mcf in 2007 and $8.06 per mcf in 2008.