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Short-Term Energy Outlook

Release Date: June 7, 2016  |  Next Release Date: July 12, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Prices

Crude Oil Prices

The monthly average spot price of Brent crude oil increased by $5/b in May to $47/b, which was the highest monthly average for Brent since October 2015. This was the fourth consecutive increase in the monthly average Brent price, the longest such stretch since May through September 2013. Increasing global oil supply outages were the main contributor to higher oil prices in May. Improving economic data and related indications that global oil demand growth is accelerating, plus ongoing declines in the U.S. rig count and in crude oil production, also contributed to rising prices.

Despite the recent increase in oil prices, EIA expects global oil inventory builds to average 0.8 million b/d during the second and third quarters of 2016, limiting upward price pressures in the coming months. Brent prices are forecast to average $46/b in the third quarter of 2016, before rising to $47/b in the fourth quarter as a result of expected slower growth in global oil inventories.

EIA expects global oil inventory draws to begin in the third quarter of 2017. The expected inventory draws contribute to forecast rising prices in the first half of 2017, with price increases expected to accelerate later in 2017. Brent prices are forecast to average $52/b in 2017, $1/b higher than forecast in last month's STEO. Forecast Brent prices reach an average of $58/b in the fourth quarter of 2017, reflecting the potential for more significant inventory draws beyond the forecast period.

In addition, a recent increase in global oil supply outages has taken pressure off storage capacity in the near term. These supply reductions were reflected in a narrowing differential for oil prices for near-term delivery compared with prices for delivery further in the future. Increased outages have reduced the possibility that inventory growth will cause storage costs to quickly rise and put downward pressure on oil prices.

Forecast West Texas Intermediate (WTI) crude oil prices average slightly less than Brent crude oil prices in 2016 and the same as the Brent price in 2017. The relative 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 price differentials to move the crudes from their respective pricing points to that market are similar.

The current values of futures and options contracts highlight the heightened volatility and high uncertainty in the oil price outlook (Market Prices and Uncertainty Report). WTI futures contracts for September 2016 delivery that were traded during the five-day period ending June 2 averaged $50/b, and implied volatility averaged 35%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in September 2016 at $36/b and $69/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $31/b and $83/b for prices in December 2016. At this time in 2015, WTI for September 2015 delivery averaged $60/b, and implied volatility averaged 33%, with the corresponding lower and upper limits of the 95% confidence interval at $45/b and $81/b.

Product Prices

EIA expects the retail price of regular-grade gasoline will average $2.21/gal during the 2016 summer driving season (April through September), 17 cents/gal higher than forecast in last month's STEO, but 42 cents/gal lower than the price in summer 2015. Higher forecast prices compared with the April STEO reflect higher forecast crude oil prices and higher gasoline demand during the summer. The projected monthly average retail price of gasoline increases from $2.11/gal in April to a peak of $2.28/gal in June before falling to $2.12/gal in September.

The U.S. regular gasoline retail price, which averaged $2.43/gal in 2015, is projected to average $2.08/gal in 2016, which is 14 cents/gal higher than projected in last month's STEO. U.S. regular gasoline retail prices are forecast to average $2.24/gal in 2017.

In 2015, higher gasoline demand in the United States and abroad contributed to wholesale gasoline margins significantly above five-year average levels. Strong gasoline demand, along with changes in the U.S. vehicle fleet in response to fuel economy standards, led to higher prices for high-octane gasoline blending components, which also contributed to the above-average gasoline margins for most of 2015. Continuing demand growth and many of the same conditions that tightened octane markets and led to high wholesale gasoline margins in 2015 still exist. EIA expects refinery runs and gasoline production to be higher in summer 2016 compared with last summer, which should contribute to wholesale gasoline margins that are lower than last summer. However, EIA forecasts gasoline margins will still be higher than the five-year average level. Additionally, any unplanned refinery outages or unexpected growth in demand could result in margins increasing above their forecast levels.

The diesel fuel retail price, which averaged $2.71/gal in 2015, is forecast to average $2.27/gal in 2016 and $2.64/gal in 2017, which is 16 cents/gal and 31 cents/gal higher than in last month's STEO, respectively. Higher diesel prices in this month's STEO reflect higher forecast crude oil prices.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $1.92/MMBtu in May, unchanged from the average price in April. Through the 2015—16 winter, prices remained relatively low because of lower demand as a result of warmer-than-normal temperatures, record inventory levels, and production growth. EIA expects natural gas prices will gradually rise through the summer, as demand from the electric power sector increases, but forecast prices remain lower than they were last summer. Monthly average Henry Hub spot prices are forecast to remain lower than $3.00/MMBtu through the end of 2016. Forecast Henry Hub natural gas prices average $2.22/MMBtu in 2016 and $2.96/MMBtu in 2017.

Natural gas futures contracts for September 2016 delivery that were traded during the five-day period ending June 2 averaged $2.42/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for September 2016 contracts at $1.64/MMBtu and $3.58/MMBtu, respectively. In early June 2015, the natural gas futures contract for September 2015 delivery averaged $2.69/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $1.79/MMBtu and $4.03/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

EIA expects the U.S. retail price of electricity for the residential sector in June to average 13.0 cents per kilowatthour (kWh), with the highest price at 18.4 cents/kWh in New England, and the lowest price at 11.0 cents/kWh in the East South Central. The U.S. residential electricity price averaged 12.7 cents/kWh in 2015 and is expected to stay about the same in 2016 and then rise 2.5% to an annual average of 13.0 cents/kWh in 2017.

Prices
  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 42.83 51.82
Brent Crude Oil
(dollars per barrel)
98.89 52.32 43.03 51.82
Gasolineb
(dollars per gallon)
3.36 2.43 2.13 2.27
Dieselc
(dollars per gallon)
3.83 2.71 2.34 2.69
Heating Oild
(dollars per gallon)
3.71 2.65 2.16 2.61
Natural Gasd
(dollars per thousand cubic feet)
10.94 10.36 9.80 10.42
Electricityd
(cents per kilowatthour)
12.52 12.67 12.64 12.96
Coale
(dollars per million Btu)
2.36 2.23 2.18 2.20

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