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Short-Term Energy Outlook

Release Date: February 10, 2015  |  Next Release Date: March 10, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Prices

Global Crude Oil Prices

North Sea Brent crude oil spot prices averaged $48/bbl in January, the lowest monthly average Brent price since March 2009, down $15/bbl from the December average. The combination of robust world crude oil supply growth and weak global demand has contributed to rising global inventories and falling crude oil prices (EIA, This Week in Petroleum, January 28, 2015).

EIA expects global oil inventories to continue to build in 2015, limiting upward pressure on oil prices because of declining drilling activity. The forecast Brent crude oil price averages $58/bbl in 2015, unchanged from last month's STEO. Based on current market balances, EIA expects prices to be relatively flat in the first half of 2015, when global inventory builds are projected to be significant. EIA projects that Brent prices will average $67/bbl during the fourth quarter.

The monthly average WTI crude oil spot price fell from an average of $59/bbl in December to $47/bbl in January, its lowest level since February 2009. EIA expects the WTI crude oil price to average $55/bbl in 2015 and $71/bbl in 2016, both unchanged from last month's STEO. The discount of WTI to Brent crude oil averaged less than $1/bbl in January, the narrowest monthly average price spread since August 2010. In the forecast, the discount of WTI to Brent is projected to average $3/bbl in 2015 and $4/bbl in 2016.

The current values of futures and options contracts suggest continuing high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for May 2015 delivery, traded during the five-day period ending February 5, averaged $52/bbl. Implied volatility averaged 52%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in May 2015 at $33/bbl and $81/bbl, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $32/bbl and $108/bbl for prices in December 2015. Last year at this time, WTI for May 2014 delivery averaged $96/bbl, and implied volatility averaged 19%. The corresponding lower and upper limits of the 95% confidence interval were $81/bbl and $113/bbl.

The recent declines in oil prices and associated increase in oil price volatility continue to contribute to a particularly uncertain forecasting environment, and several factors could cause oil prices to deviate significantly from current projections. Among these factors is the responsiveness of supply to lower prices. Despite OPEC's November 2014 decision to leave its crude oil production target at 30 million bbl/d, key producers could decide to reduce output, tightening market balances. The level of unplanned production outages could also vary from forecast levels for a wide range of producers, including OPEC members Libya, Iraq, Iran, Nigeria, and Venezuela. The degree to which non-OPEC supply growth is affected by lower oil prices will also affect market balances and prices.

Several OPEC and non-OPEC oil producers rely heavily on oil revenues to finance national budgets. Some producers have already started adjusting their upcoming budgets to reflect the crude oil price decline. If crude oil prices fall further or are sustained at current levels, then oil-dependent producers will face tough decisions. These decisions could potentially lead to austerity programs and fuel subsidy cuts that could spark social unrest, leaving some countries vulnerable to supply disruptions if protesters target oil infrastructure. Potential new supply disruptions are a real possibility and present a major uncertainty in the world oil supply forecast.

Petroleum Product Prices

U.S. average regular gasoline retail prices averaged $2.12/gal in January, the lowest monthly average since April 2009. The U.S. regular gasoline retail price, which averaged $3.36/gal in 2014, is projected to average $2.33/gal in 2015 and $2.73/gal in 2016, almost unchanged from last month's STEO. Diesel fuel retail prices, which averaged $3.83/gal in 2014, are projected to fall to an average of $2.83/gal in 2015 and then rise to $3.24/gal in 2016.

The May 2015 New York Harbor reformulated blendstock for oxygenate blending (RBOB) futures contract averaged $1.77/gal for the five trading days ending February 5, 2015, and has a 15% probability of exceeding $2.10/gal (consistent with a retail price of $2.75/gal) at expiration. The current values of futures and options contracts suggest there is a 5% probability that the RBOB futures contract price at expiration may exceed $2.35/gal, consistent with a retail price of $3.00/gal or higher, and a 8% probability that the RBOB futures price may fall below $1.35/gal, consistent with a retail price of $2.00/gal or lower. Daily and weekly national average prices can differ significantly from monthly and seasonal averages, and there are also significant differences across regions, with monthly average prices in some areas falling above or below the national average price by $0.30/gal or more.

Lower projected crude oil prices also contribute to lower expected residential heating oil prices. Average retail heating oil prices are expected to average $2.96/gal this winter, $0.92/gal lower than last winter. The average household that uses heating oil as its primary space heating fuel is now expected to spend $1,645 for heating this winter, $710 lower than last winter. Propane prices are expected to be 17% lower in the Northeast and 27% lower in the Midwest compared with last winter, resulting in households spending 23% and 35% less on propane in those regions, respectively.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.99/MMBtu in January, a decline of $0.49/MMBtu from December, and the first monthly average price under $3/MMBtu since September 2012. EIA expects monthly average spot prices to remain less than $3/MMBtu through the winter, and less than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $3.05/MMBtu in 2015 and $3.47/MMBtu in 2016.

Natural gas futures contracts for May 2015 delivery, traded during the five-day period ending February 5, averaged $2.71/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for May 2015 contracts at $1.79/MMBtu and $4.11/MMBtu, respectively. At this time last year, the natural gas futures contract for May 2014 delivery averaged $4.48/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.28/MMBtu and $6.13/MMBtu.

Coal Prices

The annual average coal price to the electric power industry fell from a record-high $2.39/MMBtu in 2011 to an estimated $2.35/MMBtu in 2014. EIA expects the delivered coal price to average $2.33/MMBtu in 2015 and $2.34/MMBtu in 2016.

Electricity Retail Prices

EIA expects continued growth in average residential electricity prices over the forecast period, albeit at a slower pace than in 2014. The U.S. retail residential price is projected to increase by 1.1% in 2015 and by 1.8% in 2016. Electricity prices in most areas of the country are projected to increase in 2015. Projected price increases in 2015 are highest in the Midwest states (2.6%).

Prices
  2013 2014 2015 2016
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)
97.91 93.26 55.02 71.00
Brent Crude Oil
(dollars per barrel)
108.64 99.02 57.56 75.00
Gasolineb
(dollars per gallon)
3.51 3.36 2.33 2.73
Dieselc
(dollars per gallon)
3.92 3.83 2.83 3.24
Heating Oild
(dollars per gallon)
3.78 3.73 2.74 3.03
Natural Gasd
(dollars per thousand cubic feet)
10.30 10.91 10.28 10.56
Electricityd
(cents per kilowatthour)
12.12 12.49 12.63 12.85
Coale
(dollars per million Btu)
2.35 2.35 2.33 2.34

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