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Short-Term Energy Outlook

Release Date: May 12, 2015  |  Next Release Date: June 9, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures


Global Crude Oil Prices

North Sea Brent crude oil spot prices increased by $4/b in April to a monthly average of $60/b, which was the highest monthly average for Brent so far this year. Several factors put upward pressure on crude oil prices in April. 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 1, the number of rigs drilling for crude oil had fallen for 21 consecutive weeks and was more than 50% below its peak in October 2014. Brent crude oil prices increased despite growing global oil inventories, which built by more than 2 million b/d for the second consecutive month in April, compared with an average build of 0.8 million b/d in March and April of last year. Inventory builds are projected to moderate in the coming months.

The monthly average WTI crude oil spot price increased to an average of $54/b in April, up $7/b from March. While crude oil inventories at Cushing, Oklahoma increased in April, they fell by 0.5 million barrels during the week ending April 24, the first decline in 21 weeks, and were unchanged for the week ending May 1. Moderating Cushing inventory builds, along with expected declines in U.S. tight oil production and increasing U.S. refinery runs, have put upward pressure on the price of WTI crude oil.

EIA projects the Brent crude oil price will average $61/b in 2015, $1/b higher that in last month's STEO, with prices rising from an average of $54/b in the first quarter to an average of $63/b for the remainder of the year. The Brent crude oil price is projected to average $70/b in 2016, $5/b lower than in last month's STEO, reflecting an increase in forecast OPEC crude oil production 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 2015 and 2016 are expected to average $6/b and $5/b, respectively, below 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 August 2015 delivery traded during the five-day period ending May 7 averaged $61/b while implied volatility averaged 33%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in August 2015 at $46/b and $81/b, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $41/b and $97/b for prices in December 2015. Last year at this time, WTI for August 2014 delivery averaged $99/b, and implied volatility averaged 17%. The corresponding lower and upper limits of the 95% confidence interval were $85/b and $115/b.

Given the high level of uncertainty in oil markets, several factors could cause oil prices to deviate significantly from current projections. Among these factors is the potential lifting of sanctions against Iran if a comprehensive agreement is reached. The level of unplanned production outages could also vary from forecast levels for a wide range of producers, including OPEC members Libya, Iraq, Nigeria, and Venezuela. The degree to which non-OPEC supply growth is affected by lower oil prices will also affect market balances and prices.

Several OPEC and non-OPEC oil producers rely heavily on oil revenue to finance their national budgets. The decline in oil prices since mid-2014 has led some governments to curb spending, potentially leading to austerity programs and fuel subsidy cuts that could spark social unrest, leaving some countries vulnerable to supply disruptions if protesters target oil infrastructure. Potential new supply disruptions are always a major uncertainty in the world oil supply forecast.

Petroleum Product Prices

Rising crude oil prices and several California refinery outages contributed to an increase in U.S. regular gasoline retail prices from a monthly average of $2.47/gal in April to $2.69/gal on May 11. The U.S. monthly average gasoline price is projected to reach $2.68/gal in May, and then decline as refineries in California 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 $2.51/gal during the third 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, 3¢/gal higher than in last month's STEO, and $2.63/gal in 2016, which is 10¢/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 and then rise to $3.12/gal in 2016.

As in the case of 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 RBOB futures contracts for August 2015 delivery traded over the five-day period ending May 7 averaged $2.00/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 August 2015 is about 12%.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.61/MMBtu in April, a decline of 22 cents/MMBtu from March. EIA expects monthly average spot prices to remain lower than $3/MMBtu through August, and lower than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $2.93/MMBtu in 2015 and $3.32/MMBtu in 2016, 14¢/MMBtu and 13¢/MMBtu, respectively, lower than in last month's STEO.

Natural gas futures contracts for August 2015 delivery traded during the five-day period ending May 7 averaged $2.85/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for August 2015 contracts at $1.98/MMBtu and $4.11/MMBtu, respectively. At this time last year, the natural gas futures contract for August 2014 delivery averaged $4.78/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.63/MMBtu and $6.31/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 $2.31/MMBtu in 2015 and $2.32/MMBtu in 2016.

Electricity Retail Prices

EIA expects continued growth in average U.S. residential electricity prices over the forecast period, but at a slower pace than last year. The forecast U.S. retail residential price increases by 1.6% in 2015 and by 1.8% in 2016. Industrial electricity prices, which are more responsive to changes in fuel costs, are expected to fall by 2.4% in 2015 and then rise by 1.2% in 2016.

  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 54.32 65.57
Brent Crude Oil
(dollars per barrel)
108.56 98.89 60.79 70.49
(dollars per gallon)
3.51 3.36 2.43 2.63
(dollars per gallon)
3.92 3.83 2.88 3.12
Heating Oild
(dollars per gallon)
3.78 3.72 2.86 2.94
Natural Gasd
(dollars per thousand cubic feet)
10.30 10.94 10.43 10.53
(cents per kilowatthour)
12.12 12.50 12.70 12.93
(dollars per million Btu)
2.34 2.36 2.31 2.32

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