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Short-Term Energy Outlook

Release Date: September 7, 2016  |  Next Release Date: October 12, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures

U.S. Petroleum and Other Liquid Fuels

Refinery wholesale gasoline margins (the difference between the wholesale price of gasoline and the price of Brent crude oil) averaged 42 cents/gal in August. This level was lower than the 73 cents/gal average in August 2015, but similar to the previous five-year average for August. Higher U.S. gasoline production and inventory levels in 2016 have contributed to lower gasoline margins than in 2015. Margins have been lower despite gasoline consumption being 2.3% higher through the first eight months of 2016 compared with the same period in 2015.

The U.S. average regular gasoline retail price decreased to $2.18/gal in August, 6 cents/gal lower than in July. Monthly average retail gasoline prices for August 2016 ranged from a low of $1.96/gal in the Gulf Coast—Petroleum Administration for Defense District (PADD) 3—to a high of $2.58/gal in the West Coast (PADD 5). EIA forecasts that the monthly average price of U.S. regular gasoline reached an annual peak in June of $2.37/gal, with lower prices expected in the second half of 2016.

Consumption

Total U.S. liquid fuels consumption increased by an estimated 290,000 b/d (1.5%) in 2015. Liquid fuels consumption is forecast to increase by 200,000 b/d (1.1%) in 2016 and by an additional 140,000 b/d (0.7%) in 2017.

Motor gasoline consumption is forecast to increase by 170,000 b/d (1.9%) to 9.33 million b/d in 2016, which would be the highest annual average gasoline consumption on record, surpassing the previous record set in 2007. The increase in gasoline consumption reflects a forecast 1.9% increase in highway travel (because of employment growth and lower retail gasoline prices) that is partially offset by increases in vehicle fleet fuel economy. EIA forecasts that gasoline consumption will fall by 10,000 b/d (0.1%) in 2017, as an increase in forecast highway travel (albeit at a slower rate than in 2016) is more than offset by expected growth in fleet-wide fuel economy.

Jet fuel consumption is forecast to increase by 40,000 b/d (2.8%) in 2016, and then fall by 10,000 b/d (0.6%) in 2017, as improvements in average airline fleet fuel economy more than offset growth in freight and passenger travel.

Consumption of distillate fuel, which includes diesel fuel and heating oil, is expected to fall by 100,000 b/d (2.5%) in 2016, after falling by 60,000 b/d (1.5%) in 2015. Falling distillate consumption in 2016 is the result of relatively warm winter temperatures, reduced oil and natural gas drilling (which uses diesel fuel in its operations), and declining coal production, which has reduced diesel use in rail shipments of coal. Stronger expected economic growth in 2017 contributes to forecast distillate fuel consumption growth of 80,000 b/d (2.1%).

Hydrocarbon gas liquids (HGL) consumption is forecast to increase by 10,000 b/d (0.6%) in 2016 and by 90,000 b/d (3.7%) in 2017, as increased ethane consumption offsets reduced consumption of other HGL. Ethane consumption is forecast to increase by 70,000 b/d (6.5%) in 2016, as expansion projects at ethylene-producing petrochemical plants increase feedstock demand for ethane. In 2017, forecast ethane consumption increases by an additional 90,000 b/d (8.2%), as five new petrochemical plants and a previously deactivated plant begin operations.

Supply

U.S. crude oil production is projected to decrease from an average of 9.4 million b/d in 2015 to 8.8 million b/d in 2016 and to 8.5 million b/d in 2017. Production levels in 2017 for this forecast are 0.2 million b/d higher than in the August STEO. The upward revisions to production largely reflect an assumption of higher drilling activity, drilling efficiency, and well-level productivity than assumed in previous forecasts.

EIA estimates that total U.S. crude oil production has fallen by 1.2 million b/d since April 2015 to an average of 8.5 million b/d in August 2016. Almost all of the production decline was in the Lower 48 onshore.

The forecast reflects declining Lower 48 onshore production that is partly offset by growing production in the federal Gulf of Mexico. Based on the current oil price forecast, EIA expects oil production to continue declining in most Lower 48 onshore oil production regions through 2017. However, EIA expects the rate of decline to slow significantly from an average month-over-month decline of 100,000 b/d in the second and third quarters of 2016 to an average month-over-month decline of only 20,000 b/d in 2017. The current price outlook is expected to limit onshore drilling and well completions. However, that is expected to be partially offset by continued increases in rig and well productivity and falling drilling and completion costs. Plays in the Permian basin appear to hold the most promising potential for production increases. Overall, EIA forecasts Lower 48 crude oil production to average 6.2 million b/d in 2017, which is down from a forecast average of 6.5 million b/d in the third quarter of 2016 and from an annual average of 6.7 million b/d for all of 2016.

Projected crude oil production in the Gulf of Mexico increases from an average of 1.5 million b/d in 2015 to 1.9 million b/d in the fourth quarter of 2017. In the Gulf of Mexico, the April 2016 start of the Julia field and the July 2016 start of the Gunflint field, along with other projects that will begin operations later in 2016 and in 2017, are expected to contribute to an increase in the region's production. Some projects may start production later than expected, potentially shifting some of the anticipated production gains from late 2017 into early 2018.

EIA expects U.S. crude oil production to decline from 9.2 million b/d in the first quarter of 2016 to an average of 8.6 million b/d in the fourth quarter of 2016. For most of 2017, production is expected to be relatively stable between 8.5 million b/d and 8.6 million b/d, except during the third quarter when EIA assumes some production declines because of hurricane-related outages. Production is expected to stabilize in 2017 because of productivity improvements, lower breakeven costs, and forecast oil price increases. The forecast remains sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators.

EIA projects that HGL production at natural gas processing plantswill increase by almost 0.3 million b/d in both 2016 and 2017. EIA expects higher ethane recovery rates in 2016 and 2017, following planned increases in demand for petrochemical plant feedstock in the United States and abroad. Planned terminal builds and expansions and a growing ship fleet allow more U.S. ethane, propane, and butanes to reach international markets, with forecast net HGL exports averaging 1.1 million b/d in 2016 and 1.4 million b/d in 2017.

Product Prices

EIA expects the retail price of regular gasoline to average $2.22/gal during the 2016 summer driving season (April through September), 3 cents/gal higher than projected in last month's STEO and 41 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 $2.13/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 $2.08/gal in 2016 and $2.26/gal in 2017.

The diesel fuel retail price averaged $2.71/gal in 2015. The diesel price is forecast to average $2.31/gal in 2016 and $2.70/gal in 2017.

U.S. Petroleum and Other Liquids
  2014 2015 2016 2017
Crude Oil prices (dollars per barrel)
WTI Spot Average 93.17 48.67 41.92 50.58
Brent Spot Average 98.89 52.32 42.54 51.58
Imported Average 89.63 46.35 37.61 47.25
Refiner Average Acquisition Cost 92.05 48.40 39.94 49.71
Retail prices including taxes (dollars per gallon)
Regular Gasoline 3.36 2.43 2.08 2.26
Diesel Fuel 3.83 2.71 2.31 2.70
Heating Oil 3.71 2.65 2.11 2.58
Production (million barrels per day)
Crude Oil 8.76 9.42 8.77 8.51
Natural Gas Plant Liquids 3.01 3.27 3.54 3.81
Fuel Ethanol 0.93 0.97 0.99 0.99
Biodiesel 0.083 0.082 0.099 0.102
Consumption (million barrels per day)
Motor Gasoline 8.92 9.16 9.33 9.32
Distillate Fuel Oil 4.04 3.98 3.87 3.96
Jet Fuel 1.47 1.54 1.58 1.57
Total Consumption 19.11 19.40 19.60 19.74
Primary Assumptions (percent change from previous year)
U.S. Real GDP Growth 2.4 2.6 1.5 2.6
Heating Degree Days 1.9 -10.3 -2.3 4.1
Distillate-weighted Industrial Production 0.8 1.0 0.9 2.2

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