Petroleum prices expected mostly flat in 2012
January 3, 2012
Although crude oil futures prices last week climbed above $100 a barrel, average values for 2012 are forecast mostly flat for crude and diesel fuel and lower for gasoline and natural gas. But flat doesn’t necessarily mean stable for petroleum and related products with uncertainty about supply from the Middle East, sluggish domestic and global economic recovery and the expiration of U.S. blenders’ credits and import tariff.
In its December Short Term Outlook the Energy Information Administration of the U.S. Department of Energy forecast minimal to modest increases from 2011 in crude oil prices in 2012, unchanged average retail diesel fuel prices and lower retail gasoline prices along with lower natural gas prices at the well head but mixed levels for users.
The U.S. average on-highway diesel fuel price was $3.79 a gallon last week, up 50c, or 15%, from $3.29 a gallon at the end of 2010, according to the E.I.A. weekly on-highway diesel fuel price survey. But last week’s average was down 22c, or 5%, from late November, down 33c, or 8%, from the 2011 high of $4.12 a gallon in early May and the lowest since mid-October.
In its December outlook the E.I.A. forecast diesel fuel prices will average $3.85 a gallon in 2012, the same as in 2011, which was up 86c, or 29%, from the 2010 average of $2.99 a gallon.
Crude oil futures prices in New York climbed above $101 a barrel on the first day of trading after the holiday break but slipped back below the $100 benchmark at midweek. Recent support mainly came from concerns about a disruption in supply from the Middle East as Iran threatened to block the key Strait of Hormuz if western nations imposed stricter trade sanctions, including a ban on Iranian oil exports, as a result of its nuclear program development.
The E.I.A. forecast average refiner crude oil acquisition costs at $102.11 a barrel in 2012, up about 86c from 2011, which was up sharply from $76.72 in 2010.
Working inventories of natural gas were record high for the date at the end of November, according to the E.I.A. A mild start to the winter also has reduced demand for natural gas (and heating oil). The E.I.A. projected the Henry Hub natural gas price to average $3.70 per million British thermal units in 2012, down 8% from 2011 and down 16% from 2010. Prices to industrial users were forecast to average $4.96 per thousand cubic feet in 2012, down about 3% from 2011 and down 8% from 2010, but 2012 prices for commercial and residential users were forecast higher than in 2011.
Retail gasoline prices were forecast by the E.I.A. to average $3.50 a gallon in 2012, down 8c from 2011 but up 67c, or 24%, from 2010. The impact on gasoline prices from policy changes to the ethanol industry were uncertain but may result in higher retail prices, according to some.
Once seen as potentially devastating to the biofuels industry, blenders’ credits for ethanol and biodiesel and the import tariff on ethanol were scheduled to expire at the end of 2011. The controversial volumetric excise tax credit of 45c a gallon for ethanol and $1 a gallon for biodiesel was to expire Dec. 31 as Congress failed to extend the credits before leaving for holiday recess. Although the 45c tax credit went to blenders and distributors and not to ethanol manufacturers, its loss was expected to be felt from the refinery level to the consumer level. The credit loss was reflected in C.M.E. Group ethanol futures prices, which were about 40c a gallon lower from the December 2011 to January 2012 contracts. At the same time, an import tariff of 54c a gallon, originally aimed at keeping lower-priced Brazilian sugar-cane-based ethanol out of the United States, also was set to expire Dec. 31.
Instead, the biofuels industry was more focused on the perceived delay by the Environ-mental Protection Agency in announcing the 2012 Renewable Fuels Standard, which sets required levels of various biofuels used in the U.S. fuel supply and basically assures ongoing demand for ethanol and biodiesel. The E.P.A. last week issued a 2012 R.F.S. of 13.2 billion gallons for ethanol, up from 12.6 billion gallons in 2011 and of 1 billion gallons of biomass-based diesel fuel. Earlier in 2011 the E.P.A. approved broader use of E15, or gasoline containing 15% ethanol, which was hailed by the ethanol industry but has yet to see full implementation.
Other factors also contributed to quiet demise of the credits and tariff. Lower prices for corn, the major material used to make ethanol in the United States, resulted in favorable margins for ethanol manufacturers later in the year. And the United States actually has been a net exporter of ethanol to Brazil as the latter struggled to meet its own ethanol needs due to strong sugar prices and lower-than-expected sugar cane production. U.S. ethanol exports were record high in 2011.
While the amount of ethanol and biodiesel may be minor to the petroleum industry (9.23% of all fuels used in the United States in 2012 must be of renewable sources, per the E.P.A.), it is critical to U.S. agriculture with about 40% of corn and 20% of soybean oil going to their manufacture, with both biodiesel and ethanol production record high in 2011.
With 2012 a presidential election year, candidates’ mixed views on biofuels, energy security and other issues may add another wrinkle to the energy sector.