Notwithstanding EIA's expectation of more relaxed balances for the second half of 2012 compared to the May STEO, EIA is still forecasting a seasonal tightening of balances between the second and third quarters. Tighter balances are mostly attributed to the uptick in quarter-over-quarter liquid fuels consumption, which globally is expected to increase 1.8 million bbl/d, similar to the seasonal increase in consumption observed over the past two years. Meanwhile, EIA forecasts global supply of liquid fuels during the quarter will be about 0.1 million bbl/d lower as OPEC countries reduce crude oil production from the second quarter level, which was the highest since the third quarter of 2008. EIA expects this to be accompanied by an increase in prices relative to their current level.
There are several key developments in June that participants will be watching closely for clues on the direction of the market, including, but not limited to, a meeting of OPEC ministers set for June 14. Developments in the euro zone, including elections in Greece on June 17 and other economic and debt issues may also affect views regarding the pace of oil demand growth. The effects of the impending European Union embargo and other sanctions targeting exports of Iranian crude oil and their associated payments remain uncertain. Some industry analysts believe optimism about recent negotiations between Iran and its counterparts in the West has helped to ease prices in recent months, even though the outcome remains uncertain. Talks in Moscow regarding Iran's nuclear program are scheduled for June 18-19.
A look at the WTI futures and options market illustrates the market's perception of price uncertainty. WTI futures for September 2012 delivery during the 5-day period ending June 7, 2012 averaged $88 per barrel. Implied volatility increased from 21.6 percent on May 1 to 33.3 percent on June 7, establishing new lower and upper limits of the 95-percent confidence interval for the market's expectations of monthly average WTI prices in September 2012 at $66 per barrel and $118 per barrel, respectively.