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Short-Term Energy Outlook

Release Date: March 10, 2015  |  Next Release Date: April 7, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures


Global Crude Oil Prices

North Sea Brent crude oil spot prices increased by $10/bbl from January to reach an average of $58/bbl in February, the first month in which Brent prices increased since June 2014. Several factors supported Brent prices in February, including news of falling U.S. crude oil rig counts and announced reductions in capital expenditures by major oil companies, both of which contributed to expectations that oil supplies could decline more quickly than previous market expectations. Additionally, lower-than-expected Iraqi crude oil exports and a reduction in Libyan production contributed to an increase in global unplanned supply disruptions. However, the sustainability of the recent price increase is very uncertain, as it occurred amid strong global oil inventory growth, which is expected to continue in the coming months. Inventory builds are projected to moderate later in the year and provide support to crude oil prices.

The monthly average WTI crude oil spot price increased to an average of $51/bbl in February, up $3/bbl from January. WTI prices increased less than Brent prices in February as U.S. commercial crude oil inventories increased to 444 million barrels as of February 27, an increase of over 50 million barrels since the end of 2014. The record inventory levels have put downward pressure on the price of crude oil for prompt delivery relative to the price of crude oil for delivery in the future.

EIA projects the Brent crude oil price will average $59/bbl in 2015, up $2/bbl from last month's STEO, with prices rising from an average of $56/bbl in the second quarter to an average of $67/bbl in the fourth quarter. The Brent crude oil price is projected to average $75/bbl in 2016.

WTI prices in 2015 and 2016 are expected to average $7/bbl and $5/bbl, respectively, below Brent. The Brent-WTI spread for 2015 is more than twice the projection in last month's STEO, reflecting continuing large builds in U.S. crude oil inventories, including at the Cushing, Oklahoma storage hub.

The current values of futures and options contracts continue to suggest very high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for June 2015 delivery traded during the five-day period ending March 5 averaged $54/bbl while implied volatility averaged 46%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in June 2015 at $36/bbl and $80/bbl, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $35/bbl and $102/bbl for prices in December 2015. Last year at this time, WTI for June 2014 delivery averaged $101/bbl, and implied volatility averaged 18%. The corresponding lower and upper limits of the 95% confidence interval were $87/bbl and $118/bbl.

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 responsiveness of supply to lower prices. Despite OPEC's November 2014 decision to leave its crude oil production target at 30 million bbl/d, key producers could decide to reduce output, tightening market balances. The level of unplanned production outages could also vary from forecast levels for a wide range of producers, including OPEC members Libya, Iraq, Iran, 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. Some producers have already started adjusting their upcoming budgets to reflect the crude oil price decline. If crude oil prices fall further or are sustained at current levels, oil-dependent producing countries will face tough decisions. These decisions could potentially lead 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 a real possibility and present a major uncertainty in the world oil supply forecast.

Petroleum Product Prices

U.S. regular gasoline retail prices averaged $2.22/gal in February, $0.10/gal more than in January, which had the lowest monthly average price since April 2009. The U.S. regular gasoline retail price, which averaged $3.36/gal in 2014, is projected to average $2.39/gal in 2015, $0.05/gal higher than forecast in last month's STEO, and $2.73/gal in 2016, unchanged from last month's STEO. Diesel fuel retail prices, which averaged $3.83/gal in 2014, are projected to fall to an average of $2.89/gal in 2015, $0.05/gal higher than in last month's STEO, and then rise to $3.25/gal in 2016.

The June 2015 New York Harbor reformulated blendstock for oxygenate blending (RBOB) futures contract averaged $1.91/gal for the five trading days ending March 5, 2015, and has a 27% probability of exceeding $2.10/gal (consistent with a retail price of $2.75/gal) at expiration. The current values of futures and options contracts suggest there is a 10% probability that the RBOB futures contract price at expiration may exceed $2.35/gal, consistent with a retail price of $3.00/gal or higher, and a 3% probability that the RBOB futures price may fall below $1.35/gal, consistent with a retail price of $2.00/gal or lower. Daily and weekly national average prices can differ significantly from monthly and seasonal averages, and there are also significant differences across regions, with monthly average prices in some areas falling above or below the national average price by $0.30/gal or more.

Despite the recent cold weather, home heating costs this winter are still expected to be lower than last winter for households using heating oil or propane. Lower projected crude oil prices this winter compared with last winter contribute to retail heating oil prices that are expected to average $3.02/gal this winter, $0.86/gal lower than last winter. The average household that uses heating oil as its primary space-heating fuel is now expected to spend $1,784 for heating this winter, about $570 less than last winter. With propane supplies more ample this winter compared with last winter, propane prices are expected to be 16% lower in the Northeast and 27% lower in the Midwest, resulting in households spending 18% and 32% less on propane in those regions, respectively.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.87/MMBtu in February, a decline of $0.12/MMBtu from January. EIA expects monthly average spot prices to remain less than $3/MMBtu through May, and less than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $3.07/MMBtu in 2015 and $3.48/MMBtu in 2016.

Natural gas futures contracts for June 2015 delivery traded during the five-day period ending March 5 averaged $2.83/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for June 2015 contracts at $1.92/MMBtu and $4.18/MMBtu, respectively. At this time last year, the natural gas futures contract for June 2014 delivery averaged $4.55/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.51/MMBtu and $5.90/MMBtu.

Coal Prices

EIA estimates that U.S. coal production for 2014 totaled 997 MMst, 13 MMst (1.3%) higher than in 2013. EIA expects annual production to decline in 2015 to 943 MMst, before growing slightly to 951 MMst in 2016.

Electricity Retail Prices

Average U.S. residential electricity prices increased in 2014 at the highest rate (3.1%) since 2008. EIA expects continued growth in average residential electricity prices over the forecast period, albeit at a slower pace than last year. The U.S. retail residential price is projected to increase by 1.0% in 2015 and by 1.8% 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)
97.91 93.26 52.15 70.00
Brent Crude Oil
(dollars per barrel)
108.60 99.00 59.50 75.03
(dollars per gallon)
3.51 3.36 2.39 2.73
(dollars per gallon)
3.92 3.83 2.89 3.25
Heating Oild
(dollars per gallon)
3.78 3.72 2.82 3.05
Natural Gasd
(dollars per thousand cubic feet)
10.30 10.94 10.24 10.64
(cents per kilowatthour)
12.12 12.50 12.63 12.86
(dollars per million Btu)
2.35 2.36 2.31 2.34

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