‹ Analysis & Projections

Short-Term Energy Outlook

Release Date: November 10, 2015  |  Next Release Date: December 8, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures


Global Crude Oil Prices

Brent crude oil spot prices increased by $1/b in October to a monthly average of $48/b. Although oil price volatility declined during October, it remained elevated compared with 2013-14 levels, as Brent spot prices changed by at least 3% on four different trading days during the month.

Continuing increases in global liquids inventories have put significant downward pressure on prices in 2015. Inventories rose by an estimated 1.8 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. Global liquid fuels inventory builds are expected to slow to an average 1.2 million b/d in the fourth quarter of 2015, and then slow further to an average of 0.4 million b/d in 2016.

The monthly average WTI crude oil spot price averaged $46/b in October. October WTI prices were up slightly from the average in September, as end-of-October crude oil inventories at the Cushing, Oklahoma, storage hub were relatively unchanged from levels a month earlier despite heavy refinery maintenance that reduced crude oil flows into Midwest refineries.

EIA forecasts that Brent crude oil prices will average $54/b in 2015 and $56/b in 2016. The 2015 forecast price is unchanged from last month's STEO, and the 2016 forecast price is $2/b lower. Forecast 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.

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 February 2016 delivery, traded during the five-day period ending November 5, averaged $48/b, while implied volatility averaged 38%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in February 2016 at $35/b and $66/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $28/b and $95/b for prices in December 2016. Last year at this time, WTI for February 2015 delivery averaged $79/b, and implied volatility averaged 28%. The corresponding lower and upper limits of the 95% confidence interval were $63/b and $99/b.

Petroleum Product Prices

Narrowing wholesale gasoline margins contributed to U.S. regular gasoline retail prices declining to an average of $2.29/gal in October, down from an average of $2.60/gal in the third quarter. EIA expects monthly average gasoline prices to continue declining in the coming months as refineries continue to produce high levels of gasoline and as the market transitions to lower-cost, winter-grade gasoline. EIA projects regular gasoline retail prices to average $2.18/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 $2.43/gal in 2015 and $2.33/gal in 2016. The 2016 forecast price is 5 cents/gal lower than in the October STEO. The diesel fuel retail price, which averaged $3.83/gal in 2014, is projected to average $2.72/gal in 2015 and $2.70/gal in 2016.

Lower projected crude oil prices this winter compared with last winter contribute to a reduction in the forecast residential heating oil price and average household heating oil expenditures this winter. The average household that uses heating oil as its primary space heating fuel is expected to pay an average of $2.50/gal this winter, 54 cents/gal lower than last winter. The average household is now expected to spend $1,360 for heating oil this winter, $493 less than last winter. The reduction in expenditures also reflects lower forecast consumption because of warmer forecast temperatures this winter compared with last winter.

Propane prices this winter are expected to be 4% lower in the Northeast and 12% lower in the Midwest, contributing to households spending 14% and 20% less on propane in those regions, respectively.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.34/MMBtu in October, a decrease of 32 cents/MMBtu from the September price. Warm weather at the end of October, strong inventory builds, continuing production growth, and expectations for a warm winter contributed to spot prices falling to three-year lows in recent weeks. Monthly average Henry Hub spot prices are forecast to remain lower than $3/MMBtu through June 2016, and lower than $3.50/MMBtu through the rest of the forecast. The projected Henry Hub natural gas price averages $2.69/MMBtu in 2015 and $3.00/MMBtu in 2016.

Natural gas futures contracts for February 2016 delivery traded during the five-day period ending November 5 averaged $2.50/MMBtu. Current options and futures prices imply market participants place the lower and upper bounds for the 95% confidence interval for February 2016 contracts at $1.60/MMBtu and $3.92/MMBtu, respectively. At this time in 2014, the natural gas futures contract for February 2015 delivery averaged $4.19/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $2.76/MMBtu and $6.38/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, 0.5% 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 8.4% 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 49.88 51.31
Brent Crude Oil
(dollars per barrel)
108.56 98.89 53.82 56.24
(dollars per gallon)
3.51 3.36 2.43 2.33
(dollars per gallon)
3.92 3.83 2.72 2.70
Heating Oild
(dollars per gallon)
3.78 3.72 2.70 2.57
Natural Gasd
(dollars per thousand cubic feet)
10.29 10.94 10.24 10.09
(cents per kilowatthour)
12.12 12.50 12.56 12.66
(dollars per million Btu)
2.34 2.36 2.25 2.26

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