(EnergyAsia, December 7 2011, Wednesday) — US refiners will pay an average US$102 a barrel for their crude oil next year, up by a dollar from this year, while natural gas will become cheaper, falling from US$4.02 per million British Thermal Unit (BTU) to US$3.70, according to the latest short-term forecast by the US Energy Information Administration (EIA).
The agency has also lowered its forecast for average household heating expenditures for heating fuels by about 3% from last month.
“Average household heating oil and propane expenditures are now expected to increase by 8% and 5%, respectively, this winter (October 1 to March 31) compared with last winter. In contrast, natural gas expenditures are projected to decline by 3% while electricity expenditures are 2 percent lower than last year’s levels,” it said.
The EIA said it expects gasoline pump prices to remain at or below current levels until early spring 2012, when prices begin their normal seasonal rise. It sees regular gasoline retail prices averaging US$3.45 per gallon in 2012.
While Brent crude’s premium over West Texas Intermediate (WTI) has shrunk in recent weeks, the EIA expects the North Sea grade to remain more costly compared with the US benchmark in 2012.
WTI spot price rose US$23 a barrel between October and November as transportation constraints out of its main market in the US Midwest began to ease, while Brent crude rose by a smaller amount of US$7 per barrel, narrowing their price differential, said the EIA.
On November 16, ConocoPhillips announced it was selling its 50% share of the Seaway crude oil pipeline linking the Houston area with oil storage facilities near Cushing, Oklahoma.
Shortly after, the buyers, Canada’s Enbridge Inc and Enterprise Products Partners, announced that they intended to reverse oil flows to run north to south starting as early as second quarter of 2012. The flow reversal may partially alleviate a transportation constraint by allowing crude oil to move from the Cushing hub to refineries located on the US Gulf Coast.
Following the announcement of the reversal, the EIA said the Brent-WTI difference fell to under $10 per barrel after reaching a record of $29.70 per barrel on September 22.
Over the past year, increasing volumes of crude oil production were delivered from Canada and the Bakken shale formation into the Midwest market, which includes the Cushing delivery point for the NYMEX light, sweet crude oil futures contract. These increasing supplies capped the WTI price, widening its discounts to record levels against Brent, a globally-traded waterborne crude.
The proposed reversed Seaway Pipeline is slated to initially transport up to 150,000 b/d of crude oil from Cushing to the Gulf Coast. The new owners’ plans include increasing capacity to 400,000 b/d by 2013.
The ability to ship crude oil out of Cushing via pipeline will allow WTI and similar inland US crudes to compete directly with the higher priced waterborne crude oils on the Gulf Coast, bringing the price of WTI more in line with global markets.
The EIA said the reversal of the Seaway Pipeline will not completely eliminate bottlenecks moving WTI to downstream markets. With Canada and other US shale formations continuing to raise crude oil production in the coming years, the US market will remain dependent on rail as the marginal mode of transportation, meaning some discount will be required to account for the costs of moving inland US crudes to the Gulf Coast.