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Short-Term Energy Outlook

Release Date: January 13, 2015  |  Next Release Date: February 10, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Prices

Global Crude Oil Prices

North Sea Brent crude oil spot prices averaged $62/bbl in December, the lowest monthly average Brent price since May 2009, down $17/bbl from the November 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, November 13, 2014).

EIA expects global oil inventories to continue to build in 2015, keeping downward pressure on oil prices. The forecast Brent crude oil price averages $58/bbl in 2015, $11/bbl lower than projected in last month's STEO. Based on current market balances, EIA expects downward price pressures to be concentrated in the first half of 2015 when global inventory builds are expected to be particularly strong. EIA projects that Brent prices will reach a 2015 monthly average low of $49/bbl in January and February, and then increase through the remainder of the year to average $67/bbl during the fourth quarter.

The monthly average WTI crude oil spot price fell from an average of $76/bbl in November to $59/bbl in December. Like Brent crude oil prices, WTI prices have decreased considerably, with monthly average prices falling by more than 44% as of December after reaching their 2014 peak of $106/bbl in June. EIA now expects WTI crude oil prices to average $55/bbl in 2015, $8/bbl lower than in last month's STEO, and $71/bbl in 2016. The discount of WTI to Brent crude oil is forecast to widen slightly from current levels later in the forecast, averaging $3/bbl in 2015 and $4/bbl in 2016.

However, the current values of futures and options contracts suggest high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for April 2015 delivery, traded during the five-day period ending January 8, averaged $51/bbl. Implied volatility averaged 48%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in April 2015 at $34/bbl and $76/bbl, respectively. The 95% confidence interval for market expectations widens considerably over time, with lower and upper limits of $28/bbl and $112/bbl for prices in December 2015. Last year at this time, WTI for April 2014 delivery averaged $98/bbl, and implied volatility averaged 16%. The corresponding lower and upper limits of the 95% confidence interval were $86/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 recent 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 their fiscal budgets. Some producers have already started adjusting their upcoming budgets to reflect the crude oil price decline. If crude oil prices continue to fall or are sustained at a lower level, then oil-dependent producers will have to make tough policy 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 in a lower-than-expected price climate and present a major uncertainty in the world oil supply forecast.

Petroleum Product Prices

U.S. average regular gasoline retail prices fell from a monthly average of $3.69/gal in June to $2.54/gal in December, the lowest monthly average since July 2009. EIA expects that U.S. regular gasoline retail prices will fall to an average of $2.13/gal in January 2015. The U.S. regular gasoline retail price, which averaged $3.36/gal in 2014, is projected to average $2.33/gal in 2015, $0.26/gal lower than in last month's STEO, and $2.72/gal in 2016. Diesel fuel retail pump prices, which averaged $3.83/gal in 2014, are projected to fall to an average of $2.85/gal in 2015 but rise to $3.25/gal in 2016.

The April 2015 New York Harbor reformulated blendstock for oxygenate blending (RBOB) futures contract averaged $1.63/gal for the five trading days ending January 8, 2015. An RBOB futures contract price of $1.63/gal is consistent with a monthly average regular-grade gasoline retail price less than $2.35/gal in April 2015. The current values of futures and options contracts suggest there is a 2% 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 17% 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 a reduction in the forecast residential heating oil price and average household heating oil expenditures this winter compared with last winter. The average household that uses heating oil as its primary space heating fuel is expected to pay an average of $2.90/gal this winter, $0.98/gal lower than last winter. The average household is now expected to spend $1,586 for heating oil this winter, $767 lower than last winter. Propane prices are expected to be 17% lower in the Northeast and 27% lower in the Midwest, resulting in households spending 24% and 35% less on propane in those regions, respectively.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $3.48/MMBtu in December, a decline of $0.64/MMBtu from November. EIA expects monthly average spot prices to remain less than $4/MMBtu until the fourth quarter of 2016. The projected Henry Hub natural gas price averages $3.44/MMBtu in 2015 and $3.86/MMBtu in 2016.

Natural gas futures prices for April 2015 delivery (for the five-day period ending January 8) averaged $2.88/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for April 2015 contracts at $1.90/MMBtu and $4.36/MMBtu, respectively. At this time last year, the natural gas futures contract for April 2014 averaged $4.19/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.21/MMBtu and $5.46/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 average delivered coal price to fall to $2.33/MMBtu in 2015 and to increase back to $2.35/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. Most areas of the country should experience rising prices, with the exception of the West South Central states where residential prices fall by 3.2% this year. Projected price increases in 2015 are again highest in the New England states (3.8%).

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 54.58 71.00
Brent Crude Oil
(dollars per barrel)
108.64 99.02 57.58 75.00
Gasolineb
(dollars per gallon)
3.51 3.36 2.33 2.72
Dieselc
(dollars per gallon)
3.92 3.83 2.85 3.25
Heating Oild
(dollars per gallon)
3.78 3.71 2.71 3.03
Natural Gasd
(dollars per thousand cubic feet)
10.30 11.00 10.63 11.00
Electricityd
(cents per kilowatthour)
12.12 12.50 12.63 12.86
Coale
(dollars per million Btu)
2.35 2.35 2.33 2.35

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