U.S. Cuts Oil Price Forecast 43% on Demand Outlook

Last Updated: November 12, 2008 15:35 EST
By Mark Shenk and Reg Curren

asr: this govt. forecast caused crude price drop, not following our VP forecast which we took trade based on .

asr: how good is the US govt. energy report forecast fared in the past, can we get data and back test ?
asr: world oil consumption 80 million barrel/day , in that US is 20 m. barrels that is 25% of total world consumption.
- US stock markets value is 40% of total world stock market values



Nov. 12 (Bloomberg) -- The U.S. government reduced its forecast for oil prices next year by 43 percent as the economic slowdown cuts energy demand.

West Texas Intermediate crude oil, the U.S. benchmark, will average $63.50 in 2009, down from $112 estimated in October, the Energy Department said in its monthly Short-Term Energy Outlook, released today in Washington.

Crude oil in New York has tumbled 62 percent since touching a record $147.27 a barrel on July 11 as the economic slump deepened and spread to emerging markets. Falling stock markets and consumer spending last month contributed to the cut in price forecasts, said Tancred Lidderdale, a government economist in Washington who supervises the report.

``The grim economic news kind of snowballed in October,'' Lidderdale said. ``The changing forecast is all due to the economy.''

Oil will average $101.45 a barrel this year, down 9.1 percent from $111.57 a barrel estimated last month, the report from the department's Energy Information Administration showed. Prices have been falling amid reduced demand for fuels from slowing world economies.

Crude-oil for December delivery declined $3.17, or 5.3 percent, to $56.16 a barrel at 2:46 p.m. today on the New York Mercantile Exchange, the lowest settlement since Jan. 29, 2007.

U.S. oil demand will average 19.56 million barrels a day this year, down 1.12 million barrels a day from 2007. This year's demand forecast was reduced 290,000 barrels from last month. Consumption will drop 250,000 barrels a day to an average 19.31 million barrels a day in 2009, the report showed.

Oil demand in the U.S. peaked at 20.8 million barrels a day in 2005, Lidderdale said.
World Oil Demand

Global oil consumption will average 85.89 million barrels a day this year, up 80,000 barrels from 2007, according to the report. The estimate is down 250,000 barrels from the forecast a month ago. Demand will average 85.93 million barrels a day in 2009, down 990,000 barrels from last month's forecast.

Regular gasoline at the pump, averaged nationwide, will cost $2.37 a gallon in 2009, down 33 percent from $3.56 estimated in the October report. The fuel will average $3.29 a gallon this year, down 7.6 percent. Prices last week dropped to a 21-month low of $2.224 a gallon, the department said Nov. 10.

The government cut its estimate of winter fuel costs from last month as prices fell. The heating season runs from October through March.

Heating Costs

Heating oil users will spend an average $1,694 this winter, down 29 percent from $2,388 forecast last month and 13 percent lower than the average $1,953 spent by households last winter.

``The falling heating-oil prices are good news for all the homeowners that didn't lock in prices for this winter,'' Lidderdale said.

Homeowners using natural gas will see average heating costs for the season of $889, down 12 percent from $1,010 forecast in the October report. The estimate is up 3.6 percent from an average $858 last winter, the report showed.

U.S. natural gas consumption in 2009 will drop 0.2 percent as demand from industrial users slides 2.2 percent, the report showed. Fuel use this year will probably expand 1.1 percent.

``The weakness in global economic growth could limit U.S. exports of natural-gas-intensive products and further reduce consumption by industrial consumers,'' the department said.

Gas output will probably expand by 6 percent in 2008, driven by new production in Texas, Oklahoma and Wyoming, the department said. Production will increase by 2 percent in 2009.

Lower prices next year and ``poor economic conditions'' will limit expansion of supplies, according to the report. Gas will average about $6.82 per thousand cubic feet in 2009, down from $9.25 this year.

Natural gas for December delivery fell 30 cents, or 4.5 percent, to settle at $6.405 per million British thermal units today on the New York exchange. Gas is down 20 percent from a year ago. Prices per million Btu are roughly equivalent to prices per thousand cubic feet.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Reg Curren in Calgary at rcurren@bloomberg.net.