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Short-Term Energy Outlook

Release Date: July 12, 2016  |  Next Release Date: August 9, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Prices

Crude Oil Prices

The monthly average spot price of Brent crude oil increased by $2/b in June to $48/b, which was the highest monthly average for Brent since October 2015. This was the fifth consecutive increase in the monthly average Brent price, the longest such stretch since May through September 2013. Although monthly average prices increased in June, daily oil prices ended June at slightly lower levels than they began the month. Significant outages of global oil supply contributed to rising oil prices in early June. However, concerns over future economic growth related to the United Kingdom's June 23 vote to exit the European Union and the easing of supply disruptions in Canada contributed to falling oil prices in late June.

EIA expects global oil inventory builds to average 0.6 million b/d in the second half of 2016, limiting upward price pressures in the coming months. Brent prices are forecast to average $48/b during the second half of 2016, which is relatively unchanged from current levels. However, daily and even monthly price variation could be significant as economic and geopolitical events affect market participants' expectations of oil market balances.

EIA expects global oil inventory draws to begin in the third quarter of 2017. The expectation of inventory draws contributes to forecast rising prices in the first half of 2017, with price increases accelerating later in 2017. Brent prices are forecast to average $52/b in 2017, unchanged from 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.

Average West Texas Intermediate (WTI) crude oil prices are forecast to be the same as Brent prices in 2016 and 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, because 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 October 2016 delivery that were traded during the five-day period ending July 7 averaged $49/b, and 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 October 2016 at $35/b and $67/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $32/b and $77/b for prices in December 2016. At this time in 2015, WTI for October 2015 delivery averaged $59/b, and implied volatility averaged 31%, with the corresponding lower and upper limits of the 95% confidence interval at $45/b and $79/b.

Product Prices

EIA expects the retail price of regular gasoline will average $2.25/gal during the 2016 summer driving season (April through September), 2 cents/gal lower than projected in last month's STEO and 39 cents/gal lower than the price in summer 2015. EIA expects the U.S. average retail price of regular gasoline to reach a peak of $2.37/gal in June and then fall to an average of $2.19/gal in September. The U.S. regular gasoline retail price, which averaged $2.43/gal in 2015, is projected to average $2.12/gal in 2016 and $2.28/gal in 2017.

As refiners have adjusted yields in favor of gasoline because of relatively high gasoline margins over the past year, EIA expects gasoline production to be higher in summer 2016 compared with summer 2015, which should contribute to lower wholesale gasoline margins than last summer. However, gasoline margins are expected to be higher than the previous five-year average level. Any unplanned refinery outages or unexpected growth in demand could result in margins above forecast levels.

The diesel fuel retail price averaged $2.71/gal in 2015. Diesel prices are forecast to average $2.36/gal in 2016 and $2.71/gal in 2017.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.59/MMBtu in June, up 67 cents/MMBtu from the average price in May. EIA expects natural gas prices to gradually rise throughout the forecast period but remain lower than they were last summer. Forecast Henry Hub natural gas prices average $2.36/MMBtu in 2016 and $2.95/MMBtu in 2017.

Natural gas futures contracts for October 2016 delivery that were traded during the five-day period ending July 7 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 October 2016 contracts at $2.00/MMBtu and $4.14/MMBtu, respectively. In early July 2015, the natural gas futures contract for October 2015 delivery averaged $2.85/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $1.92/MMBtu and $4.24/MMBtu.

Coal Prices

EIA estimates the delivered coal price averaged $2.23/MMBtu in 2015. Forecast prices are $2.19/MMBtu in 2016 and $2.24/MMBtu in 2017.

Electricity Retail Prices

The latest available data (through April) show that the U.S. residential electricity price so far this year averaged 12.3 cents per kilowatthour (kWh), which is slightly below the average price during the same period last year. On an annual basis, EIA expects the U.S. residential electricity price to fall by 0.3% in 2016 and then to rise by 2.9% 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 43.57 52.15
Brent Crude Oil
(dollars per barrel)
98.89 52.32 43.73 52.15
Gasolineb
(dollars per gallon)
3.36 2.43 2.12 2.28
Dieselc
(dollars per gallon)
3.83 2.71 2.36 2.71
Heating Oild
(dollars per gallon)
3.71 2.65 2.16 2.64
Natural Gasd
(dollars per thousand cubic feet)
10.94 10.36 9.89 10.57
Electricityd
(cents per kilowatthour)
12.52 12.67 12.64 13.00
Coale
(dollars per million Btu)
2.36 2.23 2.19 2.24

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