U.S. and global oil demand will slip as winter weather ebbs in 2Q 2006, but crude oil prices will rise from winter levels, according to a close reading of the Energy Information Administration’s latest Short-Term Energy Outlook, which was released Tuesday.

The forecast, if borne out, will be another example that the cliche of a ‘’weak second quarter'’ may be true for oil demand, but isn’t true for crude oil prices. In the past two years, second-quarter crude prices have averaged above their first-quarter level by 6.7% and 8.8%, respectively.

In its report, EIA, the statistical and analytical wing of the Department of Energy, said it lowered its crude price forecast in the coming months due to lower products prices caused by warm weather and ongoing hurricane recovery efforts. The new 4Q 2005 forecast for U.S. benchmark West Texas Intermediate is a fix on an overstated projection last month. The revision puts crude in this quarter at $60.19 a barrel, compared with $60 so far in the quarter. That’s down from last month’s projection of $63.09.

But while EIA lowered the actual numbers in its near-term crude price forecast, it increased the rate of expected price rise in percentage terms. Last month, EIA had projected 1Q 2006 prices would gain by 1.4% from the 4Q 2005 price, but would dip by 0.4% in the 2Q 2006, to $63.75, or 25 cents below the 1Q level.
Now, EIA forecasts, 1Q 2006 crude will rise by 3.7% from the 4Q level, to an average of $62.42, and will rise by a further 0.9% in 2Q, to $63 - the highest quarterly price since the record high 3Q 2005 level of $63.19.
The expectation of higher 2Q oil prices comes even as global oil demand is expected to drop by 1.75% from 1Q and demand in the U.S. - the world’s largest oil market - accounting for 25% of global demand - will slip by 0.3%. Those projected rates of decline are just slightly down from the year-ago level.

EIA projects OPEC’s output will drop to 29.6 million barrels a day in 1Q and 2Q 2006 from 30.2 million b/d in the current quarter. So far, though, some members of OPEC, which meets Dec. 12 in Kuwait have given preliminary signs that they’ll keep output policy unchanged.

Only a steep slide in crude prices would force OPEC to change tack, and that doesn’t appear to be in the cards now. Not just because EIA is projecting gains - with 2006 crude expected to average a record high $63.33, up from $56.54 this year - but because oil futures markets continue to place a premium on forward contracts. That’s because despite all of OPEC’s manueverings, the cushion of spare oil output capacity won’t rise much and demand growth will continue next year.

And the world won’t be any less dangerous a place.