The U.S. Energy Information Administration’s short-term economic growth assumptions have been lowered substantially this month compared with August’s Energy Outlook.
The latest forecast assumes that U.S. real gross domestic product (GDP) may grow by 1.5 percent in 2011 and 1.9 percent in 2012, compared with 2.4 percent and 2.6 percent, respectively, in the previous estimate. World oil-consumption-weighted real GDP grows by 3.1 percent and 3.8 percent in 2011 and 2012, respectively, compared with 3.4 percent and 4.1 percent in the last Outlook. With weaker economic growth and lower petroleum consumption growth, the agency expects the U.S. average refiner acquisition cost of crude oil to rise from an average of $100 per barrel in 2011 to $103 per barrel in 2012, compared with an increase to $107 per barrel in 2012 in last month’s Outlook.
The projected pace of global oil demand growth is lower now due to less optimistic assumptions about global economic growth. The downward revision to oil demand growth relieves some of the potential oil market tightness that had been implied by previous forecast balances. Nonetheless, without a significant change in the outlook for supply, EIA expects markets to draw upon inventories to meet at least some of the growth in consumption over the fourth quarter of 2011 and beyond. In 2012, oil demand growth from countries outside of the Organization for Economic Cooperation and Development (OECD) is projected to outpace the growth in supply from producers that are not members of the Organization of the Petroleum Exporting Countries (OPEC), implying a need for OPEC producers to increase their output to balance the market.
The inherent uncertainty of the revised price forecast is evidenced by the various shocks to oil supply, demand, and prices that have occurred this year. Upside risks to the crude oil price outlook remain, particularly due to ongoing unrest in oil-producing regions and the possibility that non-OECD demand will be more resilient than expected. However, downside risks arguably predominate, as fears persist about the rate of global economic recovery, contagion effects of the debt crisis in the European Union, and other fiscal issues facing national and sub-national governments. On the supply side, the possibility remains that Libya may be able to ramp up oil production and exports sooner than anticipated.
In the meantime, crude for October delivery added $3.23, or 3.9%, to $89.34 a barrel on the New York Mercantile Exchange as equities traded sharply higher, the dollar traded lower, and investors showed more optimism about the global economy.
