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Short-Term Energy Outlook

Release Date: August 11, 2015  |  Next Release Date: September 9, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Prices

Global Crude Oil Prices

Brent crude oil spot prices decreased by $5/b in July to a monthly average of $57/b. Prices fell further at the end of July and into early August, with Brent spot prices settling at $48/b on August 7. Continuing increases in global liquids inventories put significant downward pressure on prices. Inventories rose by an estimated 2.3 million b/d through the first seven months of 2015, compared with an average build of 0.6 million b/d over the same period last year. Inventory builds are projected to moderate somewhat in the coming months, but are expected to remain high compared with previous years. Concerns over the pace of economic growth in emerging markets and the possibility of increasing volumes of Iranian crude oil on the market also contributed to the recent oil price decline.

The monthly average WTI crude oil spot price fell to an average of $51/b in July, down $9/b from June. Crude oil inventories at Cushing, Oklahoma, despite having decreased by 5.0 million barrels from their record high of 62.2 million barrels on April 17, remain about 40 million barrels higher than at the same time last year. U.S. crude oil inventories remain elevated compared with historical levels, despite strong U.S. refinery runs , which in recent weeks reached record highs over 17 million b/d.

EIA projects the Brent crude oil price will average $54/b in 2015 and $59/b in 2016, $6/b and $8/b lower than in July's STEO, respectively. WTI prices in both 2015 and 2016 are expected to average $5/b less than the Brent crude oil price. EIA's updated projection remains subject to significant uncertainties as the oil market moves toward balance. During this period of price discovery, oil prices could experience periods of heightened volatility. The oil market faces a host of uncertainties heading into 2016 including the pace and volume at which Iranian oil reenters the market, the strength of oil consumption growth, and the responsiveness of non-OPEC production to low oil prices. In the more immediate future, there is potential downward price pressure heading into the fourth quarter if refinery runs drop by more than expected during the fall maintenance season.

The current values of futures and options contracts continue to suggest high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for November 2015 delivery, traded during the five-day period ending August 6, averaged $47/b, while implied volatility averaged 37%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in November 2015 at $34/b and $64/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $27/b and $103/b for prices in December 2016. Last year at this time, WTI for November 2014 delivery averaged $96/b, and implied volatility averaged 16%. The corresponding lower and upper limits of the 95% confidence interval were $84/b and $111/b.

Petroleum Product Prices

Rising crude oil prices, strong demand for U.S. gasoline, and several refinery outages in the Midwest and West Coast contributed to an increase in U.S. regular gasoline retail prices from a monthly average of $2.47/gal in April to $2.79/gal in July. EIA expects monthly average prices to decline in the coming months as refineries continue to produce high levels of gasoline, as demand begins to decrease following the peak in the summer driving season, and as the market transitions to lower-cost winter-grade gasoline. EIA projects regular gasoline retail prices to average $2.60/gal during the third quarter of 2015 and $2.11/gal in the fourth quarter.

The U.S. regular gasoline retail price, which averaged $3.36/gal in 2014, is projected to average $2.41/gal in 2015, 7 cents/gal lower than in July's STEO, and $2.40/gal in 2016, which is 15 cents/gal lower than in July's STEO.

The diesel fuel retail price, which averaged $3.83/gal in 2014, is projected to fall to an average of $2.73/gal in 2015, 13 cents/gal lower than in July's STEO, and then rise to $2.81/gal in 2016, 23 cents/gal lower than in last month's STEO.

As with crude oil, the market's expectation of uncertainty in monthly average gasoline prices is reflected in the pricing and implied volatility of futures and options contracts. New York Harbor reformulated blendstock for oxygenate blending (RBOB) futures contracts for November 2015 delivery, traded over the five-day period ending August 6, averaged $1.45/gal. The probability that the RBOB futures price will exceed $1.85/gal (consistent with a U.S. average regular gasoline retail price above $2.50/gal) in November 2015 is about 7%.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.84/million British thermal units (MMBtu) in July, an increase of 6 cents/MMBtu from the June price. The current STEO lowers the projection for prices slightly from last month's forecast; monthly average spot prices remain lower than $3/MMBtu through October, and lower than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $2.89/MMBtu in 2015 and $3.21/MMBtu in 2016.

Natural gas futures contracts for November 2015 delivery traded during the five-day period ending August 6 averaged $2.91/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for November 2015 contracts at $2.08/MMBtu and $4.06/MMBtu, respectively. At this time last year, the natural gas futures contract for November 2014 delivery averaged $3.96/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $3.03/MMBtu and $5.16/MMBtu, respectively.

Coal Prices

The annual average coal price to the electric power sector decreased from $2.39/MMBtu in 2011 to $2.36/MMBtu in 2014. EIA expects the delivered coal price to average $2.28/MMBtu in 2015 and 2016.

Electricity Retail Prices

The U.S. retail price of electricity to the residential sector is projected to average 12.7 cents per kilowatthour in 2015, which is 1.9% higher than the average price last year. This year-over-year increase in average electricity prices, combined with higher expected summer residential use, leads to a forecast 5.0% ($20) increase in the typical residential customer's summer electricity expenditures compared with last summer.

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)
97.98 93.17 49.62 54.42
Brent Crude Oil
(dollars per barrel)
108.56 98.89 54.40 59.42
Gasolineb
(dollars per gallon)
3.51 3.36 2.41 2.40
Dieselc
(dollars per gallon)
3.92 3.83 2.73 2.81
Heating Oild
(dollars per gallon)
3.78 3.72 2.73 2.67
Natural Gasd
(dollars per thousand cubic feet)
10.30 10.94 10.28 10.28
Electricityd
(cents per kilowatthour)
12.22 12.50 12.74 13.03
Coale
(dollars per million Btu)
2.34 2.36 2.28 2.28

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