EIA Predicts Crude Price per Barrel near $100 Until 2013

The Energy Information Administration, the clearinghouse for energy data from the United States government, predicts the crude price per barrel of Brent to stay close to $100 until 2013 ends.

That is a significantly lower forecast compared to that of the government of Newfoundland and Labrador in its 2012-2013 budget estimates. The provincial government anticipated an average per barrel oil price of $124. The oil price was close to that level at the beginning of the fiscal year, which started in April. However, that price bottomed out last month close to $90 before bouncing back to $124 per barrel just recently.

In the early parts of July, the EIA’s short-term energy outlook report was released.

The EIA prediction for a crude price per barrel of Brent will range between $97.50 and $99.50 over the coming six quarters to the end of 2013.

Brent crude is near, but not precisely at Newfoundland projected reference oil price.

The downward price changes of the EIA shows a shift in expectations regarding current or possible market disruptions that are presently dominating the sentiment in the market, according to the July report. According to the agency, the weaker outlook on growth is due to growing economic worries about Europe’s debt crisis and signs of China’s slowing growth.

The Bank of Canada made a similar reduction in its outlook for commodity prices such as oil.

Forecasting oil prices is not an exact science.

Contingency-based budgeting has been short by about $800 million yearly over the last seven years, mostly because of inaccurate projections on oil prices.  Those huge swings have been favorable to Newfoundland and Labrador before. However, it may be a different story this year.

The province anticipates the deficit for 2012-2013 to reach $258.4 million using the per barrel oil price figure of $124.

Prices that are at that level will cut into royalties, which account for almost 1/3 of provincial profits. ¬†Other factors are also at work, such as levels of production, the loonie’s relative strength and variation on royalty arrangements for various projects.

By: Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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