EIA Trims 2003 Forecast For U.S. Oil Demand

www.quicken.com Thursday, March 6, 2003 02:47 PM ET  Printer-friendly version   NEW YORK -- The U.S. Department of Energy's Energy Information Administration on Thursday cut its forecast for growth in U.S. oil demand by 15% to 500,000 barrels a day.

U.S. demand will grow this year by 90,000 barrels a day less than the EIA forecast last month. The drop came as the energy statistics agency cut its outlook for 2003 U.S. oil demand by 110,000 barrels, to 20.18 million barrels a day.

Some of the drop in the forecast for U.S. demand is accounted for by expectations that gasoline demand in the first quarter -- when weather has been poor and pump prices have spiked -- will be lower than originally thought. The EIA cut its forecast for first-quarter U.S. gasoline demand by 160,000 barrels, or 1.8%, to 8.58 million barrels daily.

A colder than normal winter in the U.S., particularly in the Northeast, has dragged on longer than expected and produced very strong demand for heating oil. The EIA raised its forecast for first-quarter demand for heating oil by 100,000 barrels to 4.29 million barrels a day.

The EIA expects broad growth in U.S. oil demand over the next two years, driven by an economic recovery and an increasingly tight natural gas market that will prompt consumers to switch fuels if possible.

The EIA expects growth in demand for all major petroleum products in 2003, in contrast to 2002, when gasoline demand was the one bright spot.

Demand for gasoline is expected to grow by 2.5% in 2003 and 2004, even as the strong increase in pump prices eats into drivers' disposable income. Demand for jet fuel is seen growing by 2.9% a year.

The EIA expects worldwide oil demand to grow by 1.1 million barrels a day this year, 100,000 barrels less than it expected last month. Demand for 2003 is forecast at 77.4 million barrels daily, 200,000 barrels less than expected in the last forecast.

Growth in demand, along with the ongoing disruption of supply from Venezuela and a looming war in Iraq, is expected to eat further into already depleted U.S. commercial oil inventories.

The EIA expects U.S. inventories of gasoline to end the second quarter at 202 million barrels, 10 million barrels less than it forecast last month, indicating it expects refiners to have trouble bulking up supplies ahead of the summer driving season. The agency expects gasoline inventories to end the first quarter at 198 million barrels, which implies a drop of eight million barrels from current levels during March.

The agency expects inventories of distillates, which include heating oil and diesel fuel, to end the first quarter at just 87 million barrels -- a figure that implies a drop of 9.5 million barrels in March. Last month, the EIA expected there would be 92 million barrels of distillates in inventory at the end of the first quarter.

The EIA also cut its expectations for growth in U.S. stocks of crude oil. Even if the situations in Venezuela and Iraq are resolved without further disruptions of supply, the industry will have trouble simultaneously rebuilding inventories of petroleum products and the crude oil from which they're made, the EIA said.

U.S. crude oil inventories will end the first quarter at 282 million barrels, down two million barrels from the last forecast, the EIA said. That figure implies 8.4 million barrels will be added to crude stocks this month.

The EIA cut its expectations for crude inventories at the end of the second quarter more sharply -- by eight million barrels, to 277 million barrels, a figure that implies growth of just 3.4 million barrels from current levels.

The agency expects the U.S. will end the year with just 278 million barrels of crude oil in stock -- barely more that what the agency considers the "lower operational level" needed to insulate the refinery system from supply shocks.

-Andrew Dowell, Dow Jones Newswires; 201-938-4430