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EIA Expects Oil to Hold Around $70 per Barrel for 2007; US Consumption to Rise 2%

Past and forecast US Fuel consumption. Click to enlarge.

Despite a recent drop in oil prices, the US Energy Information Administration (EIA) projects the WTI (West Texas Intermediate) crude oil spot price to average around $70 per barrel for the rest of 2006 and 2007. The EIA made its projection in the September edition of the Short Term Energy Outlook (STEO).

The EIA expects the price of gasoline to fall to an average $2.55 per gallon by January 2007 prior to rising again into next summer. The national average retail price of regular motor gasoline fell from $3.04 per gallon on 7 August 2006 to $2.62 per gallon on 11 September 2006.

The EIA projects world petroleum consumption growth of 1.2 million barrels per day (bpd) in 2006 and 1.7 million bpd in 2007 despite the continuing prices. Those estimates reflect a downward revision for the second consecutive STEO in response to slower-than-expected demand growth in the Organization for Economic Cooperation and Development (OECD) countries.

More than half of the demand growth in 2007 is projected to come from two countries: the United States and China. Demand growth is also projected to be strong in the oil-exporting countries of the Middle East, which are benefiting from their current high oil revenues.

The EIA anticipates that existing and potential supply problems through the world will continue to raise concern through 2007, and expects only a slight increase in world crude production.

Although OECD inventories began the second quarter at the upper end of their past 5-year range for this time of year, when measured on the basis of how many days of demand the current supply could actually meet, OECD inventories were only in the middle of their observed 5-year range. By the end of 2007, EIA projects days of supply of OECD inventories to finish at the bottom of the 5-year range for that time of year, which is expected to make the market even tighter.

The US market. Average US oil production is expected to decline by 23,000 bpd, or 0.4% in 2006, to a level slightly below 5.1 million bpd. For 2007, EIA projects an average production rate of roughly 5.5 million bpd, reflecting recovery from the 2005 hurricanes that depressed Gulf of Mexico production in the first half of 2006, as well as the startup of new deepwater production.

The EIA projects total US petroleum consumption to be unchanged in 2006 compared with 2005, but anticipates 2.0% growth in consumption in 2007 to 21.1 million barrels per day. Gasoline consumption in 2006 will increase by 1% from 2005, according to the Outlook, and will increase by another 1.2% to 9.33 million barrels per day in 2007, reflecting continued US economic growth.

Distillate (diesel fuel and heating oil) consumption, which increased 1.3 percent in 2005, is projected to increase 1.8 percent in 2006 and 2.2 percent in 2007.



I made bets around the office back in May that oil will fall to between $50-60 this fall (someone was going into their typical conspiracy theory spiel of the govt. jacking up oil prices so GWB can maximize his own personal profits). Iran will soften their stance of course...which will ease the prices down to $60/barrel in the near term.

Oil will not go back up to $70/barrel unless a major "incident" occurs as it is caused by investors/speculators and the true supply & demand price is lower. I would hate for any serious calamity to befall anyone in the world but I really would like to see oil climb back up to $80/barrel as it was starting to institute real change. If oil drops back low enough people won't care as much (they will still remember how high prices went causing caution but they will resume their typical behavioral patterns).


As market-oriented as I am, I find myself hoping that oil doesn't dip below $60 for long. That seems to be a level that doesn't harm us too much economically, while still spurring investment in biodiesel, butanol, or other alternatives. I've read of some analysts on Bloomberg predicting $40 oil. I highly doubt that. OPEC won't let it drop that far.


This report is somewhat more pessimistic than the IEA middle term projections recently released. I suspect that is because they have been burned so badly in their last few projections. I too agree that a $60 barrel would be good news. If only it would remain stable. Unfortunately with the supply margin as small as it is we're likely to see more volatility in the short term.

Paul Dietz

Oil is piling up in the various places it is stored. As those buffers are filled, it will be increasingly difficult to maintain high prices, and there will be increasing risk of a price crash (as owners of the stored oil try to sell it before prices fall even more).


OPEC did not reduce production, but may do so later this year. We are at a point where supplies will be tight from here on out, one way or the other, I think.


Ability to pay is the other factor.

Parapundit just posted that housing foreclosures are up.  If this is the end of the US housing bubble, it means recession; if that recession spreads, it means a world-wide reduction in oil demand (and ability to pay for oil).

There's only so much the producers can do to prop prices up, unless they want to see the value of their overseas investments evaporate.  Expect oil prices to be soft, so long as few have a lot of money.


Also when it sais gasoline consumption is up 1% does that include or exclude ethanol?

US ethanol production is expanding at around 100 barrels a day or 1% of gasoline demand.

I know the IEA's job is to forecast high demand levels to encourage suppliers to increase supply, but in reality having seen US demand growth for petroleum slow in 2005 and flatten in 2006 would we not expect to see a decline in demand in 2007. It is like turning around a tanker, with preferences to smaller cars and more fuel efficient and hybrid cars beginning to take effect.

Harvey D.

With car sales booming in China, India and the rest of Asia, the arrival of ethanol and hybrids will not be sufficient to reduce global oil consumption for a few years.

Oil price will stay above $50 or $60 until global demand goes down.

It may be the right time to introduce a progressive carbon fuel tax.


This is why the important part of senator Lugars proposal was a floor price for oil.I believe he proposed forty dollar base with excise tax going to alternative energy research and developement.

I would return most of the excise to the taxpayers and a portion going to alternatives.Large flows of money from government revenue streams tend to become boondogles.This would seem to be a simpler more market based solution.

Paul Dietz

A noted oil analyst (who had predicted the price rise of the last few years) is now saying oil prices are poised for a dramatic fall, perhaps below $15/barrel, at least temporarily.

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