The credible US Energy Information Administration (EIA) released its two-year short-term energy outlook in early January and it sets a benchmark when any differing forecasts for the oil price require justification. It is also a benchmark for investors to assess how to best position their energy portfolio for the coming two years and beyond.
The EIA has forecast a relatively flat oil price outlook. The price of West Texas Intermediate (WTI) crude oil averaged US$62 a barrel in 2009 but has recently crept up to US$80.
The EIA is forecasting it will average about US$80 in 2010 and US$84 in 2011, suggesting there is little upside on investing in an oil and gas (LNG) share on the expectation that it will rise because the oil price will.
A flat outlook for the oil price means compensatory growth is required and this may be in the form of project development, expansion or new discoveries. The latter is harder to predict but a company with a highly active drilling program is a good place to start.
Gas spot price half 2006-08 levels
The EIA also expects the annual average natural gas Henry Hub spot price for 2010 to be US$5.36 per thousand cubic feet (Mcf), a US$1.30 per Mcf increase over the 2009 average of $4.06. It forecasts the price will continue to increase in 2011, averaging $6.12 for the year.
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