‹ Analysis & Projections

Short-Term Energy and Summer Fuels Outlook

Release Date: April 12, 2016  |  Next Release Date: May 10, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures


Global Crude Oil Prices

Brent crude oil spot prices increased by $6/b in March to a monthly average of $38/b. Declines in the U.S. rig count and some improvement in global economic indicators contributed to higher oil prices in March. However, market expectations of ongoing growth in global oil inventories contributed to falling prices at the end of March, with Brent prices ending the month below $37/b.

With global oil inventory builds expected to average 1.4 million b/d in 2016, oil prices are forecast to remain near current levels. Forecast Brent prices average $35/b in 2016.

Global oil inventories are expected to grow by 0.4 million b/d in 2017. Lower forecast inventory builds contribute to a moderate price recovery in 2017, with Brent prices forecast to average $41/b. Forecast Brent prices reach an average of $46/b in the fourth quarter of 2017, as the global oil market is expected be relatively balanced late in 2017, with the potential for significant inventory draws beyond the forecast period.

Forecast West Texas Intermediate (WTI) crude oil prices average the same as Brent crude oil prices through the forecast period. The 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 differentials are similar to move the crudes from their respective pricing points to that market.

The expectation of continuing large inventory builds is a major source of uncertainty in the price forecast, as the capacity of global oil storage to absorb such builds is unknown. If global storage capacity becomes stressed, the cost of storage will rise to reflect more expensive marginal storage options such as floating inventories on crude oil tankers. The higher storage costs would lower near-month crude oil prices. Additional uncertainty stems from the pace of global economic growth and its contribution to oil demand growth and from the responsiveness of oil producers to sustained low oil prices.

The current values of futures and options contracts highlight the heightened volatility and high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for July 2016 delivery that were traded during the five-day period ending April 7 averaged $39/b, and implied volatility averaged 44%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in July 2016 at $27/b and $57/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $22/b and $78/b for prices in December 2016. At this time last year, WTI for July 2015 delivery averaged $52/b, and implied volatility averaged 46%, with the corresponding lower and upper limits of the 95% confidence interval at $35/b and $78/b.

Petroleum Product Prices

Natural Gas Prices

The Henry Hub natural gas spot price averaged $1.73/MMBtu in March, a decline of 26 cents/MMBtu from the February price. Warmer-than-normal temperatures through most of the winter, record inventory levels, and production growth have contributed to sustained low natural gas prices. Monthly average Henry Hub spot prices are forecast to remain lower than $3.00/MMBtu through December 2016. Forecast Henry Hub natural gas prices average $2.18/MMBtu in 2016 and $3.02/MMBtu in 2017.

Natural gas futures contracts for July 2016 delivery that were traded during the five-day period ending April 7 averaged $2.16/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for July 2016 contracts at $1.48/MMBtu and $3.14/MMBtu, respectively. In early April 2015, the natural gas futures contract for July 2015 delivery averaged $2.76/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $1.90/MMBtu and $4.00/MMBtu.

Coal Prices

EIA estimates the delivered coal price averaged $2.23/MMBtu in 2015. Forecast prices are $2.16/MMBtu in 2016 and $2.19/MMBtu in 2017.

Electricity Retail Prices

EIA forecasts the U.S. average retail price of electricity to the residential sector in April will be 12.6 cents per kilowatthour (kWh). The U.S. residential electricity price averaged 12.7 cents/kWh in 2015 and is expected to average 12.6 cents/kWh and 12.9 cents/kWh in 2016 and 2017, respectively.

  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 34.60 40.58
Brent Crude Oil
(dollars per barrel)
98.89 52.32 34.73 40.58
(dollars per gallon)
3.36 2.43 1.94 2.00
(dollars per gallon)
3.83 2.71 2.11 2.33
Heating Oild
(dollars per gallon)
3.72 2.65 1.97 2.18
Natural Gasd
(dollars per thousand cubic feet)
10.94 10.36 9.64 10.05
(cents per kilowatthour)
12.52 12.67 12.61 12.91
(dollars per million Btu)
2.36 2.23 2.16 2.19

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