$70 WTI light crude oil price this winter says EIA

West Texas Intermediate WTI crude oil price is expected to average about $70 a barrel this winter, the US Department of Energy’s Energy Information Administration (EIA) said in its short term energy and winter fuels outlook.

EIA expects average WTI prices to rise to about $75 a barrel by December 2010 as US and world economic conditions improve, based on an assumption of 1.8 percent growth in U.S. gross domestic production and a world oil-consumption-weighted GDP growth of 2.6 percent.

The agency has begun tracking futures prices “and the market’s assessment of the range in which those futures might trade” and said its monthly outlook will report confidence levels around New York Mercantile Exchange crude oil and natural gas futures prices using a measure of risk derived from Nymex options markets known as “implied volatility.”

EIA expects natural gas inventories to set a new record high at the end of the year’s injection season, Oct. 31, reaching more than 3.8 trillion cubic feet; the Henry Hub annual average spot price is expected to increase from $3.85 per thousand cubic feet in 2009 to $5.02 in 2010.

“Starting this month, EIA is including a quantitative measure of price uncertainty based on options market transactions in our monthly Short-Term Energy Outlook,” EIA Administrator Richard Newell said in an Oct. 6 statement. “The new measure characterizes the degree of uncertainty in futures market prices, and provides perspective on the range of possible energy prices.”

Nymex futures market participants were pricing WTI delivered to Cushing, Okla., in December at an average of $68 per barrel during the five days ending Oct. 1, EIA said. The 95 percent confidence level for those December futures contracts “ranges between $48 per barrel and $96 per barrel, a $48 per barrel difference,” with about a 5 percent chance prices will fall outside of that 95 percent confidence interval.

In the same period, natural gas futures on Nymex were trading at $5.64 per million Btu for gas delivered to Henry Hub, La., during December. The 95 percent confidence interval around this price ranges between $3.70 and $8.60, a difference of $4.90 per million Btu.

Oil demands revised upward
EIA said sustained economic growth in China and signs of a turnaround in other Asian countries continue to fuel expectations of a world oil consumption recovery; the agency has revised its oil consumption expectations upward by 200,000 barrels per day for the remainder of 2009 and 2010.

But the WTI oil price expectation has not been revised because there are ample oil supplies on the market, with inventories high and OPEC oil production expected to increase.

Tags:  EIA, light oil price, WTI