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Short-Term Energy Outlook

Release Date: August 9, 2016  |  Next Release Date: September 7, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures


Crude Oil Prices

The monthly average spot price of Brent crude oil decreased by $3/b in July to $45/b, which was the first monthly decrease since January 2016. Significant outages of global oil supply contributed to rising oil prices during the second quarter of 2016. However, concerns about 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. Prices continued to fall in July because of concerns about high levels of U.S. and global petroleum product inventories, despite relatively strong demand, and because of growing U.S. oil rig counts. The Baker Hughes U.S. active oil rig count increased for six consecutive weeks in July and early August, the longest stretch of weekly increases in almost a year.

EIA expects global oil inventory builds to average 0.5 million b/d in the second half of 2016, limiting upward price pressures in the coming months. Brent prices are forecast to average $43/b during the second half of 2016. However, daily and even monthly price variations could be significant as economic and geopolitical events affect market participants' expectations of oil market balances.

EIA expects consistent global oil inventory draws to begin in mid-2017. The expectation of inventory draws contributes to accelerating price increases in the second quarter of 2017, with price increases continuing later in 2017. Brent prices are forecast to average $52/b in 2017, unchanged from last month's STEO. Forecast Brent prices average $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 slightly less than Brent prices in 2016 and the same as Brent prices 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, 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 November 2016 delivery that were traded during the five-day period ending August 4 averaged $42/b, and implied volatility averaged 42%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in November 2016 at $29/b and $61/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $22/b and $104/b for prices in December 2017. At this time in 2015, WTI for November 2015 delivery averaged $47/b, and implied volatility averaged 37%, with the corresponding lower and upper limits of the 95% confidence interval at $34/b and $64/b.

Product Prices

EIA expects the retail price of regular gasoline to average $2.19/gal during the 2016 summer driving season (April through September), 6 cents/gal lower than projected in last month's STEO and 44 cents/gal lower than the price in summer 2015. EIA expects that the U.S. average retail price of regular gasoline reached a peak of $2.37/gal in June and will fall to an average of $2.05/gal in September and to an average of $1.92/gal in December. The U.S. regular gasoline retail price, which averaged $2.43/gal in 2015, is forecast to average $2.06/gal in 2016 and $2.26/gal in 2017, 6 cents/gal and 2 cents/gal lower, respectively, from the July STEO.

The diesel fuel retail price averaged $2.71/gal in 2015. Diesel prices are forecast to average $2.30/gal in 2016 and $2.70/gal in 2017.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.82/MMBtu in July, up 24 cents/MMBtu from the June average. Price increases reflected warmer-than-normal temperatures in July, which led to increased demand from the electric power sector. Despite the increase in spot prices, prices still remain low enough to support significant natural gas-fired generation. EIA expects natural gas prices to gradually rise throughout the forecast period. Forecast Henry Hub prices average $2.41/MMBtu in 2016 and $2.95/MMBtu in 2017.

Natural gas futures contracts for November 2016 delivery that were traded during the five-day period ending August 4 averaged $3.01/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for November 2016 contracts at $2.12/MMBtu and $4.28/MMBtu, respectively. In early August 2015, the natural gas futures contracts for November 2015 delivery averaged $2.91/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $2.08/MMBtu and $4.06/MMBtu.

Coal Prices

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

Electricity Retail Prices

The U.S. residential electricity price averaged an estimated 13.0 cents per kilowatthour (kWh) in July 2016. For the month, the highest residential electricity price was 17.9 cents/kWh in New England, and the lowest residential electricity price was 10.7 cents/kWh in the East South Central area. EIA expects the annual average U.S. residential electricity price to fall by 0.3% in 2016 and then rise by 3.0% in 2017.

  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 41.16 51.58
Brent Crude Oil
(dollars per barrel)
98.89 52.32 41.60 51.58
(dollars per gallon)
3.36 2.43 2.06 2.26
(dollars per gallon)
3.83 2.71 2.30 2.70
Heating Oild
(dollars per gallon)
3.71 2.65 2.11 2.60
Natural Gasd
(dollars per thousand cubic feet)
10.94 10.36 9.96 10.66
(cents per kilowatthour)
12.52 12.67 12.64 13.02
(dollars per million Btu)
2.36 2.23 2.19 2.24

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