Brent Crude Oil per Barrel hits 92 USD

Brent crude oil price reached towards $92 per barrel on Tuesday, as the European Union meeting is about to take place in Brussels for the 20th time, since the Euro debt crisis started in Greece in 2010, later this week. Analysts expect a better strategic plan from the European Union meeting to solve the debt crisis which will create a greater demand for oil.

Brent crude prices have fallen to double digits recently,from the level of $128 in March 2012, driven by the economic uncertainty prevailing in the world. Higher output by OPEC nations, the geo political tensions in Iran have further influenced the oil prices.

Brent crude rose 73 cents to $91.74 a barrel by 0824 GMT after reaching a session high of $92 in London. US crude climbed 27 cents to $79.48.

Crude Oil Advanced two percent as Financial Shares Gain

Crude oil advanced two percent as financial shares gained and the European Central Bank said it will relax some rules on bank collateral. Oil climbed from an eight-month low as U.S. equities rallied.

Crude Oil prices also gained as Gulf of Mexico platforms began evacuations on the growing threat of a tropical storm. Futures fell 5.1 percent this week as manufacturing slumped in the U.S., China and Europe and American supplies rose to a 22-year high.

August oil delivery increased $1.56 to settle at $79.76 a barrel on the New York Mercantile Exchange. Futures touched $77.56, the lowest intraday price since Oct. 5. The price is down 19 percent this year. Brent oil for August settlement gained $1.75, or 2 percent, to end the session at $90.98 a barrel on the London-based ICE Futures Europe exchange. Earlier the contract touched $88.49, the lowest price since Dec. 2, 2010. August Brent contract traded at a 28-cent discount to September. It’s the fifth consecutive day that the front-month contract has been cheaper than the second month, a market structure known as contango. That typically signals an excess of supply.

Equities advanced after none of the financial firms was cut more than Moody’s had forecast. The prospect of downgrades had weighed on banks since Moody’s said Feb. 15 it was reviewing 17 banks with capital-markets operations because of fragile confidence and tighter regulations that pinched revenue.

The Standard & Poor’s 500 Index (SPX) climbed 0.8 percent and the Dow Jones Industrial Average advanced 0.6 percent.

“The oil market is trying to decide whether or not to price in a global recession,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Weak economic numbers have fed those concerns this week.”

Oil tumbled in intraday trading as the Munich-based Ifo institute said its German business climate index, based on a survey of 7,000 executives, dropped to a two-year low.

Prices dropped 4 percent yesterday after the Federal Reserve Bank of Philadelphia’s general economic index showed manufacturing in the Philadelphia region shrank in June. Analysts predicted no change. Factory output also declined in Europe and China.

“After the incredible selloff yesterday, it appears that the market has already priced in the bad news,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We need more negative headlines to make new lows.”

Energy platforms in the Gulf of Mexico began evacuations as the weather system off the Yucatan Peninsula threatened to grow into a tropical storm. The Miami-based National Hurricane Center said there’s a 70 percent chance the cluster of thunderstorms will organize into a tropical depression or Tropical Storm Debby in the next two days.

The Gulf is home to 29 percent of U.S. oil output, 6.4 percent of gas production and 40 percent of refining capacity.

OPEC’s basket of crudes dropped below $90 a barrel for the first time in more than 17 months. The basket, a weighted average price of the main grades produced by the Organization of Petroleum Exporting Countries, was at $89.48 a barrel yesterday.

The group decided June 14 to retain its group output target of 30 million barrels a day. The 12 member nations pumped about 1.6 million barrels a day more than that limit in May, according to data compiled by Bloomberg.

Saudi Arabia has been trying to lower the price of oil to bolster the global economy as Western nations impose sanctions on Iran. The kingdom pumped 9.9 million barrels of crude a day in May, the highest level since at least January 1989, based on Bloomberg estimates.

“Markets always overshoot,” Wittner said. “Oil, unlike other commodities, has OPEC and Saudi Arabia in particular, which can cut back when needed. The Saudis have accomplished what they aimed to do by reducing prices, increasing inventories and making up for the Iran sanctions that are almost in place.”

European Union sanctions on oil imports from Iran will start on July 1 as agreed by the bloc’s governments and will be implemented without any delay, an EU official said today.

Electronic trading volume on the Nymex was 463,273 contracts as of 3:14 p.m. in New York. Volume totaled 714,879 contracts yesterday, 28 percent above the three-month average. Open interest was 1.43 million.

Oil prices fell Thursday, hitting an eight-month low, as markets continued to react to disappointing economic news across the globe.

The price of oil for August delivery fell to $78.58 a barrel as markets settled, down nearly 4% from Wednesday. This is the first time since October that oil prices hit below $80, what analysts consider a key psychological number.

Signs of a slowdown in manufacturing in China, Europe and the United States delivered the oil market another blow on Thursday.

“Prices have gotten clobbered, and it’s being driven by the deteriorating economic data,” said Matt Smith, a commodity analyst at Summit Energy Services.

A survey of Chinese manufacturers saw a decline in the number of export orders, while the manufacturing index in Europe remained at a three-year low. Domestically, the Philadelphia Federal Reserve reported a 16.6% drop in its regional manufacturing index.

The oil markets also reacted to jobless claims, which analysts said showed little improvement. Prices were also still coming down from disappointment over the Federal Reserve’s decision to hold interest rates steady.

Crude Oil Prices Drop 2.4 percent June 2012

Crude oil prices dropped as much as 2.4 percent as Spanish borrowing costs rose to a euro-era high. More Spanish loans went unpaid in April, Bank of Spain data showed, suggesting the country’s recession is forcing more companies and consumers into default. The weekend elections in Greece eased concern the country may exit the euro. Crude oil dropped for the first time in three days on concern that the worsening European debt crisis will slow global economic growth and reduce demand for crude.

Federal Reserve policy makers will meet tomorrow as slowing employment growth at home and a deepening crisis in Europe weigh on the economic outlook. Group of 20 nations are discussing a mix of measures to secure the global recovery, a Canadian official said.

Oil for July delivery fell 98 cents, or 1.2 percent, to $83.05 a barrel at 10:27 a.m. on the New York Mercantile Exchange. Prices are down 19 percent in the second quarter and 16 percent this year. Brent oil for August settlement dropped $1.23, or 1.3 percent, to $96.38 a barrel on the London-based ICE Futures Europe exchange.

“Although the Greek news was positive, people are more concerned now about Spain,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There is a bearish economic contagion in Europe and it’s essentially bringing prices down.”

The 10-year Spanish bond yield jumped above 7 percent for the first time since the creation of the euro. Bad loans as a proportion of total Spanish lending rose to 8.72 percent in April, the highest level since 1994, the Bank of Spain said on its website today.

The euro fell as much as 0.9 percent against the dollar. A weaker euro and stronger dollar reduce oil’s value as an investment alternative.

In Greece, the New Democracy and Pasok parties won enough seats to form a majority in the 300-member parliament, according to the parliament’s speaker, easing concern that Greece would reject austerity measures needed to qualify for aid.

New Democracy’s Antonis Samaras will begin his second bid in six weeks to form a coalition.

“This is clearly a rejection of the Greek elections,” said Mike Fitzpatrick, editor of the Energy Overview newsletter in New York and previously an oil trader at MF Global. “The market is not going to play that game anymore.”

Oil also declined as U.S. stocks fell amid concern about the worsening debt crisis in Europe. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average fell as much as 0.6 percent before rebounding.

Oil consumption in Europe will fall 340,000 barrels a day this year and a further 230,000 in 2013, the Energy Department’s Energy Information Administration forecast in its monthly Short- Term Energy Outlook report on June 12. Demand in the U.S. will also decline in 2012, said the EIA, which also said demand may fall further if Europe’s economy deteriorates.

Oil prices Climb, Crude Oil for May delivery Rose 68 cents

Oil prices climbed after US consumer sentiment and spending gained and Euro area agreed to boost rescue funds. Oil futures prices increase 0.9 % and crude oil for May delivery rose 68 cents or about 0.7 %, to USD 103.46 per barrel on NYME.

Brent oil for May settlement gained 81 cents, or 0.7 percent, to $123.20 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate oil was at $19.74, compared with yesterday’s close of $19.61, the widest gap in five months.

Crude oil prices fell 2.5 percent at March 29 2012, the biggest drop since December, and are down 3.4 percent this week after U.S. stockpiles climbed to the highest level since August and Western countries discussed tapping emergency reserves.

Consumer sentiment index rose to 76.2 from 75.3 at the end of last month. It was projected to come in at 74.5 after a preliminary figure of 74.3, according to the median of 63 estimates from economists in a Bloomberg News survey. U.S. consumer purchases gained 0.8 percent in February, the Commerce Department said.

Crude Oil Rose as Pipeline Explosion in Saudi Arabia

Crude oil for April delivery rose $1.77 to settle at $108.84 a barrel on the Nymex before the Press TV report. The price was $108.73 at 5:11 p.m. Futures settled at a nine-month high of $109.77 on Feb. 24. Clashes between Saudi police and armed Shiite protesters in Awwamiya and al-Qatif, both cities in the oil-producing eastern region, have intensified since October when 11 police were injured in an attack. Saudi authorities accuse Iran of stirring up the unrest. The protesters have cultural and family ties with Shiite-led Iran. Saudi Arabia’s royal family is Sunni.

Oil climbed over $110 a barrel for the first time since May after an Iranian state-run news channel reported an explosion on a pipeline in Saudi Arabia. A Saudi official said no oil facilities were sabotaged.

Futures reached $110.55 at 3:17 p.m. in New York after Iran’s Press TV reported on its English-language website that “an explosion has hit oil pipelines in the flashpoint Saudi Arabian city of Awwamiya,” then fell back below $109. Major General Mansour Al-Turki, a spokesman for the Saudi Interior Ministry, said no oil facility in the region has been sabotaged after reports of a fire near the Ras Tanura refinery.

“It looks like it’s a rumor but it shows you how sensitive the oil market is to any kind of supply constraint,” said Phil Streible, a Chicago-based commodities broker at RJO Futures.

Brent oil for April settlement climbed $3.54, or 2.9 percent, to a 10-month high of $126.20 a barrel on the London- based ICE Futures Europe exchange. Brent rose as high as $128.40 after the settlement and dropped back to $126.15.

Futures in New York rose 1.7 percent in regular trading as U.S. officials escalated warnings that the nation may join Israel in attacking Iran to stop the development of nuclear weapons and on economic reports signaling growth. The number of Americans filing first-time claims for jobless benefits fell and the Federal Reserve said yesterday that the housing market has shown improvement.

“The next few days could be very important as far as Iran is concerned,” said Matthew Dougherty, a managing director at Advisory Research Inc. in Chicago, which oversees $6 billion. “The labor market is improving and we’re starting to see some sparkles of hope in the housing market. These two sectors have been weighing on the economy for the last several years.”

Brent’s premium to New York-traded West Texas intermediate oil widened to $17.36 based on settlements. The premium has climbed with Iranian tensions and supplies in the U.S. Stockpiles at Cushing, Oklahoma (DOESCROK), the delivery point for WTI, rose 1.65 million barrels to 33.8 million last week, the most since August, the Energy Department said yesterday.

“Brent is stronger because that’s where any disruption in supply is going to be felt,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The news came from an Iranian source, which is problematic.”

While Iran has said its atomic program is for civilian purposes, the U.S. and its allies say the country is trying to develop the capacity to produce nuclear weapons.

General Norton Schwartz, the Air Force chief of staff, said yesterday that the Joint Chiefs of Staff have prepared military options to strike Iranian nuclear sites in the event of a conflict.

Israeli Prime Minister Benjamin Netanyahu is scheduled to address the American Israel Public Affairs Committee in Washington on March 5, a day after President Barack Obama speaks to the group, the main pro-Israel lobby in the U.S.

“We’re waiting to hear what Obama says to Aipac Sunday and to Netanyahu on Monday,” Dougherty said. “It wouldn’t take much to spook the market.”

Excluding Iran from the crude market would add to the shortfall between global supply and demand, according to U.S. Energy Department calculations using February estimates. Fuel use averaged 3 million barrels a day more than output when Iran is excluded, and 500,000 more when it is included, the department said in a report yesterday.

Saudi Arabia is deploying the most oil rigs in four years as it prepares for possible shortages caused by tension with Iran. The number of rigs used more than doubled in January from a year earlier, the biggest annual increase on record, data from Houston-based Baker Hughes Inc. (BHI) showed.

Applications for unemployment insurance decreased 2,000 in the week ended Feb. 25 to 351,000, Labor Department figures showed today. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg News survey.

“The jobs numbers were good, which is a great boost for the energy market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Employment data is a good predictor of demand.”

Electronic trading volume on the Nymex was 804,930 contracts as of 5:11 p.m. in New York. Volume totaled 691,115 contracts yesterday, 13 percent above the three-month average. Open interest was 1.54 million contracts, the highest level since Aug. 16.

Gasoline Demand Down, Crude Oil Prices may Fall on Expectation

Gas review

Gasoline demand at the pump in the week ended Dec. 9 was 8.76 million barrels a day, down 4.6 percent from a year earlier, according to MasterCard Inc.’s SpendingPulse report on Dec. 13. Year-to-date demand is down 1.6 percent from a year earlier.

On Long Island, regular gasoline averaged $3.55 a gallon in the latest survey, Lundberg said. Los Angeles-area retail stations averaged $3.52 a gallon.

The highest price in the lower 48 U.S. states among the cities surveyed was in San Francisco, where customers paid an average of $3.57 a gallon. The lowest price was in Albuquerque, New Mexico, where a gallon averaged $2.83, Lundberg said.

The average price for regular gasoline at U.S. filling stations fell 5.25 cents to $3.2393 a gallon, according to Lundberg Survey Inc.

The price decline covers the two-week period ended Dec. 16 and is based on the company’s survey of about 2,500 stations.

“Unknowns about the European debt crisis seem to have made oil prices skittish, and it is the cause of continued declines at the pump,” Trilby Lundberg, president of Lundberg Survey in Camarillo, California, said yesterday in a telephone interview. “The U.S. gasoline market continues to receive down pressure from falling gasoline demand.”

Gasoline for January delivery on the New York Mercantile Exchange fell 12.92 cents, or 4.9 percent, to $2.487 a gallon in the two weeks ended Dec. 16.

U.S. gasoline stockpiles jumped 3.82 million barrels to 218.8 million in the week ended Dec. 9, the highest level since March, the Energy Department reported Dec. 14. Inventories have risen 14.7 million barrels, or 7.2 percent, in five weeks of gains.

Measured on a four-week average, demand, or deliveries to wholesalers, was 4.5 percent below a year earlier, compared with a 3.5 percent deficit the prior week. The four-week average of total fuel supplied was 5.6 percent below 2010.

Crude oil Prices review

Crude prices may fall this week on expectation that the European debt crisis will worsen and reduce fuel demand. The front-month crude oil contract declined $7.43, or 7.4 percent, in the two weeks ended Dec. 16 to settle at $93.53.

Nine of 17 analysts, or 53 percent, forecast oil will slide through Dec. 23. Six respondents, or 35 percent, predicted a gain and two estimated there will be little change. Last week, 41 percent of surveyed analysts projected a drop.

Crude oil supplies fell 1.93 million barrels to 334.2 million in the week ended Dec. 9, according to the Energy Department. Inventories at Cushing, Oklahoma, the delivery point for New York-traded West Texas Intermediate oil, rose 83,000 barrels to 31.2 million.

US Short Term Energy Outlook

Energy outlook, EIA expects the U.S. average refiner acquisition cost of crude oil to remain relatively flat, averaging about $100 per barrel in 2011 and 2012. The value of West Texas Intermediate (WTI) benchmark crude oil was about $11 per barrel below the U.S. refiner acquisition cost of crude oil in the third quarter of this year.

The forecast WTI price discount narrows to $8 per barrel by the fourth quarter of 2012, as rail and truck capacity is added to the region. EIA’s U.S. and world economic growth assumptions have been lowered from last month’s Outlook. World oil-consumption-weighted real GDP grows by 3.1 percent in 2012, compared with 3.5 percent in the previous Outlook. EIA projects that average household heating expenditures for heating oil and propane will increase by 10 percent and 9 percent, respectively, this winter (October 1 to March 31) compared with last winter. Average expenditures for households that heat with oil or propane are forecast to be higher than in any previous winter. In contrast, natural gas and electricity expenditures are projected to remain close to last year’s levels. Regular-grade gasoline retail prices have fallen by 46 cents per gallon from their peak monthly average this year of $3.91 per gallon for May to $3.45 per gallon for October. This drop in prices results from falling crude oil prices as well as the normal seasonal decline in consumption and the switch in production from summer-grade gasoline to lower-cost winter-grade gasoline.

EIA projects gasoline retail prices to continue to decline, albeit slightly, through the end of the year. Natural gas working inventories ended October 2011 at an estimated 3.8 trillion cubic feet (Tcf), about 1 percent below the same time last year. The projected Henry Hub natural gas spot price averages $4.09 per million British thermal units (MMBtu) in 2011, $0.30 per MMBtu lower than the 2010 average, and $4.13 per MMBtu in 2012. Regional turmoil, particularly in Syria and Yemen, exerts additional pressure on the non‐OPEC outlook and on global oil prices. EIA revised Brazil’s liquids fuels production forecast downward for both 2011 and 2012 by 140 thousand bbl/d and 90 thousand bbl/d, respectively. The revisions are due to the decrease in projected ethanol production resulting from a poor sugar cane harvest and reduced investment. However, EIA expects that Brazil’s crude oil production will continue to increase through the forecast period.

OPEC Supply.

While forecast OPEC non‐crude liquids production, which is not subject to production targets, is expected to increase by 0.4 million bbl/d in 2011 and by 0.5 million bbl/d in 2012, EIA expects OPEC crude oil production to remain flat in both 2011 and in 2012, after having grown by 0.7 million bbl/d in 2010. Libyan oil exports resumed at the end of September, averaging about 0.2 million bbl/d. EIA expects Libyan crude oil exports to rise to 0.35 million bbl/d during the first quarter of 2012 and to 0.8 million bbl/d by the end of 2012, compared with pre‐disruption exports of 1.5 million bbl/d. OPEC surplus crude oil production capacity falls from 3.5 million bbl/d in the fourth quarter of 2010 to a projected 3.0 million bbl/d in the fourth quarter of 2011, but then increases to 4.0 million bbl/d in the fourth quarter of 2012, as Libyan production capacity comes back on line, freeing up capacity in other OPEC countries (OPEC Surplus Crude Oil Production Capacity Chart).

OECD Petroleum Inventories.

EIA expects that OECD commercial inventories will decline in both 2011 and 2012. However, because of declining consumption, days of supply (total inventories divided by average daily consumption) falls slightly, from 57.7 days to 57.4 days between the fourth quarters of 2011 and 2012 (Days of Supply of OECD Commercial Stocks Chart).

Crude Oil Prices.

West Texas Intermediate (WTI) crude oil spot prices fell from an average of $110 per barrel in April to $86 per barrel in August, and remained near this level through October (West Texas Intermediate Crude Oil Price Chart). EIA has revised the projected oil price paths slightly upward from last month’s Outlook. EIA expects that the U.S. refiner average crude oil acquisition cost will average $100 per barrel in 2011 and 2012, slightly higher than the projections of $99 per barrel and $98 per barrel for 2011 and 2012, respectively, in the previous Outlook. For most of the last 30 years, WTI has traded at a premium over the average U.S. refiner acquisition cost of crude oil. However, the growth in crude oil supply, particularly from Canada and North Dakota, to the midcontinent region where WTI is traded, has not yet been matched by increases in transportation capacity out of the Midwest to the refining centers, such as the Gulf Coast. This transportation bottleneck contributes to the large price discount for WTI relative to other U.S. and world crude oils. After reaching a record price discount in the third quarter of this year, the discount for WTI is now expected to diminish modestly as the flow of crude oil out of the mid‐continent region increases. Consequently, the projected U.S. refiner acquisition cost of crude oil, which averaged $11 per barrel above WTI in the third quarter of this year, narrows to $8 per barrel above WTI by the fourth quarter of 2012, as rail and truck capacity is added.

Energy price forecasts are highly uncertain (Market Prices and Uncertainty Report). WTI futures for January 2012 delivery during the 5‐day period ending November 3 averaged $93 per barrel. Implied volatility averaged 39 percent, establishing the lower and upper limits of a 95‐percent confidence interval for the marketʹs expectations of monthly average WTI prices in January of $72 per barrel and $121 per barrel, respectively. Last year at this time, WTI for January 2011 delivery averaged $85 per barrel and implied volatility averaged 31 percent. The corresponding lower and upper limits of the 95‐percent confidence interval were $69 per barrel and $103 per barrel.

U.S. Crude Oil and Liquid Fuels

U.S. Liquid Fuels Consumption. Projected total U.S. liquid fuels consumption in 2011 falls by 250 thousand bbl/d (1.3 percent) (U.S. Liquid Fuels Consumption Chart). Motor gasoline consumption accounts for most of the projected decline for the year, shrinking by 220 thousand bbl/d (2.4 percent). EIA expects total liquid fuels consumption to increase by 110 thousand bbl/d (0.6 percent) to 19.0 million bbl/d in 2012. Projected motor gasoline and distillate consumption rise by 40 thousand bbl/d (0.5 percent) and 30 thousand bbl/d (0.7 percent) in 2012, respectively, as highway travel and the U.S. economy show modest growth.

U.S. Liquid Fuels Supply and Imports. Domestic crude oil production increased by 110 thousand bbl/d in 2010 to 5.5 million bbl/d. Production increases by a further 210 thousand bbl/d in 2011, and by 240 thousand bbl/d in 2012 (U.S. Crude Oil and Liquid Fuels Production Chart). This rising trend in production is driven by increased oildirected drilling activity, particularly in on‐shore shale formations. Liquid fuel net imports (including both crude oil and refined products) fell from 57 percent of total U.S. consumption in 2008 to 49 percent in 2010 because of rising domestic production and the decline in consumption during the economic downturn. EIA forecasts that liquid fuel net imports share of total consumption will decline to 45 percent in 2011.

U.S. Crude Oil and Petroleum Product Inventories. Distillate fuel oil stocks ended October 2011 at an estimated 143 million barrels, down 19 million barrels from the same time last year and 5 million barrels below the average for that month between 2006 and 2010 (see This Week In Petroleum, Nov. 2, 2011). Total motor gasoline stocks at the end of October 2011 were an estimated 209 million barrels, down 1 million barrels from last year but 5 million barrels higher than the previous 5‐year average for that month. Projected total distillate and motor gasoline inventories at the end of 2012 will average about 3 million barrels and 4 million barrels higher, respectively, than their previous 5‐year averages (U.S. Gasoline and Distillate Inventories Chart). Commercial crude oil inventory levels ended October 2011 at an estimated 340 million barrels, 28 million barrels below last year but 8 million barrels higher than the previous 5‐year average for that month. Projected commercial crude oil stocks are gradually drawn down to 317 million barrels by the end of 2012, close to their 5‐year average (U.S. Crude Oil Stocks Chart).

U.S. Petroleum Product Prices. EIA forecasts that the annual average regular‐grade gasoline retail price, which averaged $2.78 per gallon in 2010, will increase to an average of $3.54 per gallon in 2011, before declining to an average $3.46 per gallon in 2012 (U.S. Gasoline and Crude Oil Prices Chart). The higher retail prices in 2011 reflect not only the higher cost of crude oil but also changes in the average U.S. refinery gasoline margin (the difference between refinery wholesale gasoline prices and the average cost of crude oil). The average U.S. refinery gasoline margin increases from $0.34 per gallon in 2010 to $0.48 per gallon in 2011, then declines to $0.42 per gallon in 2012. The forecast narrowing of the WTI crude oil price discount to other crude oils should lower average refining margins next year. EIA expects that on‐highway diesel fuel retail prices, which averaged $2.99 per gallon in 2010, will average $3.84 per gallon in 2011 and $3.79 per gallon in 2012 (U.S. Diesel Fuel and Crude Oil Prices Chart).

Natural Gas

U.S. Natural Gas Consumption. EIA expects that total natural gas consumption will grow by 1.7 percent to 67.1 billion cubic feet per day (Bcf/d) in 2011 (U.S. Total Natural Gas Consumption Chart). Rising use of natural gas in the industrial and electric power sectors accounts for most of the increase in total consumption this year, with projected growth rates of 2.0 percent and 1.5 percent, respectively. Projected total natural gas consumption increases by 1.1 percent in 2012 to 67.9 Bcf/d, compared with a projected level of 67.7 Bcf/d in last month’s Outlook. Higher projections of residential and commercial consumption account for much of this change in the forecast, driven by the 1.1 percent increase in heating degree‐days from 2011 to 2012.

U.S. Natural Gas Production and Imports. EIA expects U.S. marketed natural gas production to average 65.6 Bcf/d in 2011, a 3.8‐Bcf/d (6.1 percent) increase over 2010. All of this growth comes from higher onshore production in the lower 48 States, which more than offsets a year‐over‐year decline of 1.0 Bcf/d (17 percent) in the Federal Gulf of Mexico (GOM). EIA expects that total marketed production will continue to grow in 2012, but at a slower pace, increasing 1.3 Bcf/d (2.0 percent) to an average of 66.9 Bcf/d d (U.S. Total Natural Gas Production and Imports Chart). Drilling activity has been resilient despite lower natural gas spot and futures prices. According to Baker Hughes, the October 28 rig count was 934 active drilling rigs targeting natural gas, higher than this year’s low of 866 on May 20 and higher than last month. If drilling continues to increase, production could grow more than expected in 2012.

Growing domestic natural gas production has reduced reliance on natural gas imports and contributed to increased exports. EIA expects that pipeline gross imports of natural gas will fall by 6.7 percent to 8.5 Bcf/d during 2011 and by another 1.4 percent to 8.3 Bcf/d in 2012. Projected U.S. imports of liquefied natural gas (LNG) will fall from 1.2 Bcf/d in 2010 to 0.9 Bcf/d in 2011 and to 0.7 Bcf/d in 2012. Pipeline gross exports to Mexico and Canada are expected to average 4.1 Bcf/d in 2011 and 4.2 Bcf/d in 2012, compared with 3.1 Bcf/d in 2010.

U.S. Natural Gas Inventories. Working natural gas in storage ended October at an estimated 3.8 Tcf (U.S. Working Natural Gas in Storage Chart). EIA expects that working natural gas inventories will total about 1.8 Tcf at the end of March 2012, the end of the winter heating season. This would represent a withdrawal of 2.0 Tcf over the upcoming heating season, compared with a withdrawal of 2.3 Tcf last season.

U.S. Natural Gas Prices. The Henry Hub spot price averaged $3.56 per MMBtu in October 2011, 34 cents lower than the September 2011 average and 49 cents lower than the August 2011 average (Henry Hub Natural Gas Price Chart). This month’s Outlook lowers the 2011 forecast by 6 cents to $4.09 per MMBtu and lowers the 2012 forecast by 19 cents to $4.13 per MMBtu compared with last month’s Outlook. Natural gas futures prices for January 2012 delivery (for the 5‐day period ending November 3, 2011) averaged $3.96 per MMBtu, and the average implied volatility was 35 percent (Market Prices and Uncertainty Report). The lower and upper bounds for the 95‐percent confidence interval for January 2012 contracts are $3.06 per MMBtu and $5.13 per MMBtu. At this time last year, the January 2011 natural gas futures contract averaged $4.13 per MMBtu and implied volatility averaged 41 percent. The corresponding lower and upper limits of the 95‐percent confidence interval were $3.06 per MMBtu and $5.59 per MMBtu.

Coal

U.S. Coal Consumption. EIA expects that coal consumption for electricity generation will decline by 16 million short tons (MMst) (1.6 percent) in 2011, as the modest growth in total electricity generation is more than satisfied by increases in generation from natural gas, hydropower, and renewables other than hydropower. Projected increases in generation from natural gas, nuclear and non‐hydro renewables, combined with lower electricity consumption, contribute to an additional 4.6 percent decline in electric power sector coal consumption in 2012.

U.S. Coal Supply. EIA forecasts that coal production will fall slightly (by 0.2 percent) in 2011 despite a significant increase in coal exports (U.S. Annual Coal Production Chart). Coal production in the Western region is projected to decline, while production in the Appalachian and Interior regions increases slightly. EIA expects coal production to decline by 3.6 percent in 2012 as domestic consumption and exports fall and inventories at electric power plants decline (U.S. Electric Power Sector Coal Stocks Chart).

U.S. Coal Trade. U.S. coal exports rose to 54 MMst during the first half of 2011, the highest since 1982, representing about a 35 percent during the first half of 2011 compared with the same period in 2010. EIA expects U.S. coal exports to remain elevated over the second half of 2011, reaching an annual total of 102 MMst. Forecast U.S. coal exports fall back to 91 MMst in 2012, as supply from other major coalexporting countries recovers from disruptions.

U.S. Coal Prices. Average delivered coal prices to the electric power sector have increased steadily over the last 10 years by an average of 6.7 percent each year. EIA expects that this trend will continue in 2011, largely because of a rise in transportation costs. The projected average delivered coal price to the electric power sector, which was $2.26 per MMBtu in 2010, rises to $2.41 per MMBtu in 2011 and $2.44 per MMBtu in 2012.

Electricity

U.S. Electricity Consumption. Total U.S. consumption of electricity across all sectors is forecast to fall by 0.6 percent during 2012 after having grown by an estimated 0.3 percent this year (U.S. Total Electricity Consumption Chart). Despite the recent cold snap and snowstorm in the Northeast, NOAA expects overall temperatures this U.S. Energy Information Administration/Short-Term Energy Outlook — November 2011 8 winter to be milder than last year. In the South Atlantic region, where a majority of households heat with electricity, heating degree‐days between October 2011 and March 2012 are expected to be 5.9 percent lower than in the same period last year. This implies a drop of 2.6 percent in winter electricity sales to the residential sector in the South Atlantic.

U.S. Electricity Generation. EIA projects total U.S. generation by the electric power sector will average 10.9 terawatt hours per day during 2011. Coal is expected to fuel about 44.9 percent of this generation, down from a 46.1 percent share last year. During 2012, EIA expects coal to supply about 43.5 percent of total generation. In contrast, the share of generation fueled by natural gas is forecast to rise, growing from 22.6 percent in 2010 to 22.8 percent in 2011, and 23.7 percent in 2012 (U.S. Electric Power Sector Generation Chart).

U.S. Electricity Retail Prices. The cost of coal delivered to electric generators is expected to increase by 6.4 percent during 2011, while the delivered cost of natural gas continues to decline. The net effect will be relatively modest growth in retail electricity prices over the forecast horizon. EIA expects average U.S. residential electricity prices to increase by 1.7 percent in 2011 and by 1.2 percent in 2012 (U.S. Residential Electricity Prices Chart).

Renewables and Carbon Dioxide Emissions

U.S. Renewables. Led by a 23‐percent increase in conventional hydropower, the total supply of renewables is projected to grow by about 12 percent from 2010 to 2011. EIA expects total renewable energy supply to decline by 1.1 percent in 2012 as a 12‐percent decline in hydropower offsets growth in other renewable energy supplies. U.S. hydropower generation during 2011 is expected to reach the highest level since 1999, primarily because of high levels of precipitation in regions such as the Pacific Northwest. EIA assumes a return to normal snow and rainfall levels in 2012, with hydropower generation falling by 0.36 quadrillion Btu (12 percent). Wood and wood waste is second only to hydropower in terms of the total energy supplied by renewable sources. Because much of the wood supply is subject to industrial market conditions, especially in the pulp and paper industry, a decline of 2.4 percent is projected between 2010 and 2011 as output from the paper industry is projected to decline more than 1 percent. Wood supply growth picks up in 2012 to a projected rate of 1.8 percent.

Wind energy is estimated to have grown by 23 percent from 2010 to 2011. Growth in wind energy in 2012 is projected to slow to 15 percent as the expiration of the production tax credit nears. The solar energy supply is projected to grow by 4.5 percent and 4.9 percent in 2011 and 2012, respectively, reaching a total of 0.12 quadrillion Btu.

In terms of liquid renewable fuels, EIA estimates that biodiesel production in 2011 averaged about 56 thousand bbl/d (860 million gallons total annual production). This volume surpasses the 2011 Renewable Fuel Standard (RFS) Biomass‐Based Diesel mandate of 800 million gallons. RFS credits generated above the current mandate can be banked and used for compliance in the following year for up to 20 percent of the requirement. The $1 per gallon biodiesel tax credit expires at the end of 2011. In 2012, biodiesel production is forecast to grow slightly higher to 61 thousand bbl/d (940 million gallons), just reaching the proposed 2012 RFS mandate of 1.0 billion gallons after accounting for 60 million gallons of 2011 credits.

Ethanol production growth, which averaged 120 thousand bbl/d annually between 2005 and 2010, is expected to slow to 30 thousand bbl/d in 2011 and 20 thousand bbl/d in 2012, reaching an average of 920 thousand bbl/d in 2012. Ethanol exports reduce the volume of ethanol blended into gasoline. Assuming ethanol net exports average about 40 thousand bbl/d next year, EIA expects that 880 thousand bbl/d of ethanol will be blended into gasoline in 2012. The expiration of the Federal motor fuels excise tax credit for ethanol blending is expected to have little effect on blending levels, as ethanol producers do not currently appear to be capturing much of the value of the credit.

U.S. CO2 Emissions. EIA estimates that CO2 emissions from fossil fuels increased by 3.9 percent in 2010 (U.S. Carbon Dioxide Emissions Growth Chart). Forecast fossilfuel CO2 emissions fall by 0.6 percent in 2011, as increasing emissions from higher natural gas consumption are offset by declines in coal and petroleum consumption. Increases in hydroelectric generation and other renewable energy sources in 2011 also help to mitigate emissions growth. Fossil‐fuel CO2 emissions in 2012 are expected to decline by about 1 percent as emissions from coal decline by 4.1 percent. That decline more than offsets expected increases in emissions from petroleum (0.4 percent) and natural gas (1.3 percent).