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Short-Term Energy Outlook

Release Date: June 9, 2015  |  Next Release Date: July 7, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Prices

Global Crude Oil Prices

North Sea Brent crude oil spot prices increased by almost $5/b in May to a monthly average of $64/b, which was the highest monthly average for Brent so far this year. Several factors put upward pressure on crude oil prices in May. These factors included indications that global oil demand growth is accelerating, evidence that U.S. tight oil production could decline in the coming months, and the growing risk of unplanned supply outages in the Middle East and North Africa. As of May 29, according to Baker Hughes, the number of rigs drilling for crude oil in the United States had fallen for 25 consecutive weeks and was 60% below its peak in October 2014. Brent crude oil prices increased despite estimated increases in global oil inventories, which rose in May by more than 2.0 million b/d for the third consecutive month, compared with an average build of 1.0 million b/d in March through May of last year. Inventory builds are projected to moderate somewhat in the coming months, but are expected to remain high compared with previous years.

The monthly average WTI crude oil spot price increased to an average of $59/b in May, up $5/b from April. After increasing for 20 consecutive weeks to a record 62.2 million barrels on April 17, crude oil inventories at Cushing, Oklahoma, have since fallen for six consecutive weeks by a total of 3.2 million barrels. Along with falling Cushing inventories, increasing U.S. refinery runs and production outages in Canada have put upward pressure on the price of WTI crude oil.

EIA projects the Brent crude oil price will average $61/b in 2015, unchanged from last month's STEO. The Brent crude oil price is projected to average $67/b in 2016, $3/b lower than in last month's STEO, reflecting an increase in forecast non-OPEC crude oil production growth in 2016. However, this price projection remains subject to the uncertainties surrounding the possible lifting of sanctions against Iran and other market events. WTI prices in both 2015 and 2016 are expected to average $5/b less than Brent.

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 September 2015 delivery traded during the five-day period ending June 4 averaged $60/b while implied volatility averaged 33%. 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 2015 at $45/b and $81/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $40/b and $92/b for prices in December 2015. Last year at this time, WTI for September 2014 delivery averaged $101/b, and implied volatility averaged 14%. The corresponding lower and upper limits of the 95% confidence interval were $89/b and $114/b.

Petroleum Product Prices

Rising crude oil prices 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 $2.72/gal in May. EIA expects monthly average prices to decline through the summer as refineries in the Midwest and West Coast resolve outages and refineries in the rest of the country increase production of gasoline following the spring maintenance season. EIA projects regular gasoline retail prices to average $2.52/gal during the third quarter of 2015 and $2.33/gal in the fourth quarter.

The U.S. regular gasoline retail price, which averaged $3.36/gal in 2014, is projected to average $2.44/gal in 2015, 1¢/gal higher than in last month's STEO, and $2.55/gal in 2016, which is 8¢/gal lower than in last month's STEO.

The diesel fuel retail price, which averaged $3.83/gal in 2014, is projected to fall to an average of $2.88/gal in 2015, unchanged from last month's STEO, and then rise to $3.04/gal in 2016, 9¢/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 September 2015 delivery traded over the five-day period ending June 4 averaged $1.97/gal. The probability that the RBOB futures price will exceed $2.35/gal (consistent with a U.S. average regular gasoline retail price above $3.00/gal) in September 2015 is about 10%.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.85/MMBtu in May, an increase of 24¢/MMBtu from the April price. EIA expects monthly average spot prices to remain lower than $3/MMBtu through June, and lower than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $2.97/MMBtu in 2015 and $3.32/MMBtu in 2016.

Natural gas futures contracts for September 2015 delivery traded during the five-day period ending June 4 averaged $2.69/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for September 2015 contracts at $1.79/MMBtu and $4.03/MMBtu, respectively. At this time last year, the natural gas futures contract for September 2014 delivery averaged $4.58/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.54/MMBtu and $5.92/MMBtu.

Coal Prices

The annual average coal price to the electric power sector fell from $2.39/MMBtu in 2011 to an estimated $2.36/MMBtu in 2014. EIA expects the delivered coal price to average $2.30/MMBtu in 2015 and $2.31/MMBtu in 2016.

Electricity Retail Prices

EIA projects the U.S. retail price of electricity to the residential sector to average 2.3% more than in 2014. Utilities and retail suppliers in the New England states, especially Massachusetts, significantly increased electricity rates for residential customers late last year in anticipation of a repeat of winter price spikes in the regional wholesale power market. However, New England wholesale prices during the first quarter of 2015 averaged about half the level as in the same period last year, and EIA forecasts that these cost savings should be passed on to retail customers by the end of 2015.

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 55.35 62.04
Brent Crude Oil
(dollars per barrel)
108.56 98.89 60.53 67.04
Gasolineb
(dollars per gallon)
3.51 3.36 2.44 2.55
Dieselc
(dollars per gallon)
3.92 3.83 2.88 3.04
Heating Oild
(dollars per gallon)
3.78 3.72 2.84 2.89
Natural Gasd
(dollars per thousand cubic feet)
10.30 10.94 10.23 10.38
Electricityd
(cents per kilowatthour)
12.12 12.50 12.79 13.09
Coale
(dollars per million Btu)
2.34 2.36 2.30 2.31

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