‹ Analysis & Projections

Short-Term Energy Outlook

Release Date: February 9, 2016  |  Next Release Date: March 8, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures


Global Crude Oil Prices

Brent crude oil spot prices decreased by $7/b in January to a monthly average of $31/b, the lowest monthly average price since December 2003. Ongoing growth in global oil inventories and uncertainty over future global demand growth continued to put downward pressure on oil prices during January. After growing by an estimated 1.8 million b/d in 2015, global oil inventories are forecast to grow by 1.4 million b/d in the first quarter of 2016.

During January, daily changes in crude oil prices were highly correlated with daily changes in global equity indexes. The increased co-movement and higher volatility likely reflect increased uncertainty about future global economic growth. Changes in overall demand for risk assets, such as commodities and equities, by investors and market participants may also be playing a larger role in price discovery across global asset markets compared with previous months.

With global oil inventory builds expected to continue in 2016, upward pressure on crude oil prices will be limited. Forecast Brent prices will average $38/b in 2016, $3/b lower than forecast in last month's STEO. The largest inventory builds occur in the first half of 2016, helping keep Brent prices below $40/b through August.

Brent prices are forecast to average $50/b in 2017, with upward price pressure concentrated later in that year. At that point, the market is expected to experience small inventory draws, with the possibility of further draws beyond the forecast period. Brent prices are forecast to average $56/b in the fourth quarter of 2017.

Forecast West Texas Intermediate (WTI) crude oil prices average the same as Brent crude oil prices through the forecast period, compared with $2/b lower than Brent in 2016 and $3/b lower in 2017 in the prior STEO. The price parity of WTI with Brent in the forecast period is based on the assumption of competition between the two crudes in the U.S. Gulf Coast refinery market, as transportation differentials are similar to move the crudes from their respective pricing points to that market.

The current values of futures and options contracts continue to suggest both heightened volatility and high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for May 2016 delivery, traded during the five-day period ending February 4, averaged $35/b, while implied volatility averaged 57%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in May 2016 at $21/b and $58/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $19/b and $85/b for prices in December 2016. At this time last year, WTI for May 2015 delivery averaged $52/b, and implied volatility averaged 52%. The corresponding lower and upper limits of the 95% confidence interval were $33/b and $81/b.

Petroleum Product Prices

Lower crude oil prices contributed to U.S. regular gasoline retail prices declining to an average of $1.95/gal in January, down from an average of $2.04/gal in December. EIA projects regular gasoline retail prices to fall to $1.82/gal in February 2016 and average $1.88/gal in the first quarter of 2016, before rising during the spring.

The U.S. regular gasoline retail price, which averaged $2.43/gal in 2015, is projected to average $1.98/gal in 2016, which would be the lowest annual average since 2004, and $2.21/gal in 2017.

The diesel fuel retail price, which averaged $2.71/gal in 2015, is projected to average $2.22/gal in 2016, 6 cents/gal lower than in last month's STEO, and $2.58/gal in 2017.

Lower projected crude oil prices this winter (2015-16) and warmer temperatures compared with last winter have contributed to a reduction in forecast average household heating oil expenditures. Households that use heating oil as a primary space heating fuel are expected to pay an average of $2.12/gal this winter, 92 cents/gal less than last winter. The average household is now expected to spend $1,054 for heating oil this winter, $798 less than last winter. The reduction in expenditures also reflects lower forecast consumption because warmer temperatures are forecast this winter compared with last winter.

Propane prices this winter are expected to be 10% lower than last winter in the Northeast and 22% lower in the Midwest, contributing to households spending 25% and 34% less on propane in those regions, respectively.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.28/MMBtu in January, an increase of 35 cents/MMBtu from the December price and the first monthly increase since July 2015. Warmer-than-normal temperatures in the first half of the heating season, record inventory levels, and production growth contributed to spot prices remaining low through December, but seasonably cold weather in the beginning of 2016 and increases in consumption likely contributed to the price increase in January. Monthly average Henry Hub spot prices are forecast to rise through 2016, but they remain lower than $3/MMBtu until December. Forecast Henry Hub natural gas prices average $2.64/MMBtu in 2016 and $3.22/MMBtu in 2017.

Natural gas futures contracts for May 2016 delivery traded during the five-day period ending February 4 averaged $2.23/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for May 2016 contracts at $1.57/MMBtu and $3.16/MMBtu, respectively. In February 2015, the natural gas futures contract for May 2015 delivery averaged $2.71/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $1.79/MMBtu and $4.11/MMBtu.

Coal Prices

EIA estimates the delivered coal price averaged $2.23/MMBtu in 2015. Forecast prices are $2.18/MMBtu in 2016 and $2.20/MMBtu in 2017.

Electricity Retail Prices

The U.S. retail price of electricity to the residential sector is projected to average 12.2 cents per kilowatthour (kWh) in the first quarter of 2016 and 12.7 cents/kWh for the whole year, similar to 2015 levels. In 2016, the average residential electricity price is expected to be highest in New England at 18.4 cents/kWh. It is expected to be lowest in the West South Central region at 10.9 cents/kWh. In 2017, the U.S. residential electricity price is projected to average 13.1 cents/kWh.

  2014 2015 2016 2017
a West Texas Intermediate.
b Average regular pump price.
c On-highway retail.
d U.S. Residential average.
e Electric power generation fuel cost.
WTI Crude Oila
(dollars per barrel)
93.17 48.67 37.59 50.00
Brent Crude Oil
(dollars per barrel)
98.89 52.32 37.52 50.00
(dollars per gallon)
3.36 2.43 1.98 2.21
(dollars per gallon)
3.83 2.71 2.22 2.58
Heating Oild
(dollars per gallon)
3.72 2.65 2.09 2.41
Natural Gasd
(dollars per thousand cubic feet)
10.94 10.36 9.83 10.21
(cents per kilowatthour)
12.52 12.66 12.68 13.10
(dollars per million Btu)
2.36 2.23 2.18 2.20

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