‹ Analysis & Projections

Short-Term Energy and Winter Fuels Outlook

Release Date: October 6, 2015  |  Next Release Date: November 10, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures


Global Crude Oil Prices

Brent crude oil spot prices increased by $1/b in September to a monthly average of $48/b. Along with increasing volatility in global equity prices and exchange rates, crude oil price volatility increased significantly in August, reflecting uncertainty about potential lower economic and oil demand growth in emerging market countries. Volatility remained high in September, with Brent spot prices increasing from $42/b on August 24 to $50/b on September 3, before falling back into the range of $45/b to $50/b for the rest of the month.

Continuing increases in global liquids inventories have put significant downward pressure on prices. Inventories rose by an estimated 2.0 million b/d through the first three quarters of 2015, compared with an average build of 0.5 million b/d over the same period in 2014. However, global liquid fuels inventory builds fell to an estimated 1.2 million b/d in September. Inventory builds are projected to slow in the coming months, but they are expected to remain high compared with previous years.

The monthly average WTI crude oil spot price increased to an average of $46/b in September, up $3/b from August, driven by falling U.S. crude oil output and five consecutive weeks of oil inventory draws at the Cushing, Oklahoma, storage hub. Crude oil inventories at Cushing fell to 53 million barrels on September 25, the lowest level since March 6 of this year, but they remain 32 million barrels higher than at the same time last year. Total U.S. crude oil inventories were relatively flat in September, despite a decrease in U.S. refinery runs, as refinery maintenance season began.

EIA projects the Brent crude oil price will average $54/b in 2015 and $59/b in 2016, unchanged from September's STEO. WTI crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. EIA's crude oil price forecast remains subject to significant uncertainties as the oil market moves toward balance. During this period of price discovery, oil prices could continue to experience periods of heightened volatility. The oil market faces many 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 of 2015 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 January 2016 delivery, traded during the five-day period ending October 1, averaged $46/b, while implied volatility averaged 43%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in January 2016 at $32/b and $67/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $26/b and $98/b for prices in December 2016. Last year at this time, WTI for January 2015 delivery averaged $91/b, and implied volatility averaged 19%. The corresponding lower and upper limits of the 95% confidence interval were $76/b and $107/b.

Petroleum Product Prices

Rising crude oil prices, strong gasoline demand, and ongoing refinery outages on the West Coast contributed to an increase in U.S. regular gasoline retail prices from a monthly average of $2.47/gal in April to $2.80/gal in June. Falling crude oil prices and narrowing wholesale gasoline margins have since contributed to prices declining to an average of $2.37/gal in September. EIA expects monthly average gasoline prices to decline in the coming months as refineries continue to produce high levels of gasoline, as demand begins to decrease following the summer driving season, and as the market transitions to lower-cost, winter-grade gasoline. EIA projects regular gasoline retail prices to average $2.12/gal in the fourth quarter of 2015.

The U.S. regular gasoline retail price, which averaged $3.36/gal in 2014, is projected to average $2.42/gal in 2015 and $2.38/gal in 2016. The 2015 average price is 1 cent/gal higher than in the September STEO, and the 2016 average price is unchanged.

The diesel fuel retail price, which averaged $3.83/gal in 2014, is projected to fall to an average of $2.72/gal in 2015 and then rise to $2.77/gal in 2016.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.66/MMBtu in September, a decrease of 11 cents/MMBtu from the August price. Monthly average Henry Hub spot prices are forecast to remain lower than $3/MMBtu through January, and lower than $3.50/MMBtu through the rest of the forecast. The projected Henry Hub natural gas price averages $2.81/MMBtu in 2015 and $3.05/MMBtu in 2016.

Natural gas futures contracts for January 2016 delivery traded during the five-day period ending October 1 averaged $2.87/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for January 2016 contracts at $1.93/MMBtu and $4.27/MMBtu, respectively. At this time in 2014, the natural gas futures contract for January 2015 delivery averaged $4.19/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $2.96/MMBtu and $5.94/MMBtu, respectively.

Coal Prices

The annual average coal price to the electric power sector averaged $2.36/MMBtu in 2014. EIA expects the delivered coal price to average $2.25/MMBtu in 2015 and to increase by one cent to average $2.26/MMBtu in 2016.

Electricity Retail Prices

The U.S. retail price of electricity to the residential sector is projected to average 12.6 cents per kilowatthour in 2015, 0.4% higher than the average price last year. The largest price increases are projected to be in New England, where residential electricity prices are forecast to increase by 8.2% in 2015, as electricity distribution companies recover higher generation and power purchase costs incurred during 2014. However, wholesale power prices in New England have been relatively low this year, and utilities in New England have been lowering retail prices in the past few months from their peak in March and April.

  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 49.53 53.57
Brent Crude Oil
(dollars per barrel)
108.56 98.89 53.96 58.57
(dollars per gallon)
3.51 3.36 2.42 2.38
(dollars per gallon)
3.92 3.83 2.72 2.77
Heating Oild
(dollars per gallon)
3.78 3.72 2.73 2.65
Natural Gasd
(dollars per thousand cubic feet)
10.29 10.94 10.35 10.28
(cents per kilowatthour)
12.12 12.50 12.55 12.69
(dollars per million Btu)
2.34 2.36 2.25 2.26

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