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Short-Term Energy Outlook

Release Date: August 11, 2015  |  Next Release Date: September 9, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

U.S. Petroleum and Other Liquids

On July 13, U.S. average diesel fuel retail prices fell below average regular gasoline prices for the first time since the week of August 10, 2009, and have remained lower for four consecutive weeks. Ongoing refinery outages in California, as well as strong demand for gasoline in both the United States and abroad, have kept gasoline prices elevated over the past two months despite falling crude oil prices. Data from the U.S. Federal Highway Administration show Americans drove a record 1.26 trillion miles during the first five months of 2015, compared with the previous record of 1.23 trillion miles driven in the first five months of 2007. As a result, refinery wholesale gasoline margins (the difference between the wholesale price of gasoline and the price of Brent crude oil) have been strong in recent months, leading to record-high refinery runs. U.S. average wholesale gasoline margins averaged 73 cents/gal in July, 42 cents/gal higher than in July of last year and 40 cents/gal higher than the five-year average (2010-14) for July.

Refinery outages on the West Coast have contributed to gasoline prices in that region rising by more than the U.S. average over the past few months, as well as significant price volatility. After declining by 22 cents/gal from May 18 to an average of $3.30/gal on July 6, regular gasoline prices in Petroleum Administration for Defense District (PADD) 5 increased again to a new 2015 peak of $3.60/gal on July 20. PADD 5 retail prices have fallen to $3.36/gal as of August 10.

In July, monthly average regional gasoline retail prices ranged from a low of $2.49/gal in PADD 3, the Gulf Coast region, to a high of $3.51/gal in PADD 5. EIA expects gasoline prices to fall from their current levels, with the U.S. regular gasoline price averaging $2.11/gal in the fourth quarter of 2015.

Liquid Fuels Consumption

Total U.S. liquid fuels consumption rose by an estimated 70,000 b/d (0.4%) in 2014. Total liquid fuels consumption is forecast to grow by 400,000 b/d (2.1%) in 2015 and by 190,000 b/d (1.0%) in 2016. The 2016 consumption forecast is about 70,000 b/d higher than forecast in last month's STEO.

Motor gasoline consumption, which rose by 80,000 b/d in 2014, increases by a projected 210,000 b/d (2.3%) in 2015 as the effects of employment growth and lower gasoline prices outweigh increases in vehicle fleet efficiency. Gasoline consumption is forecast to remain relatively flat in 2016, as a long-term trend toward more-fuel-efficient vehicles offsets the effects of continued economic growth.

Consumption of distillate fuel, which includes diesel fuel and heating oil, is forecast to rise by 40,000 b/d (1.1%) in 2015 and by an additional 100,000 b/d (2.4%) in 2016. This growth is driven by increasing manufacturing output, foreign trade, and marine fuel use.

Hydrocarbon gas liquids (HGL) consumption, which fell by 100,000 b/d (4.0%) in 2014, is projected to increase by 90,000 b/d in both 2015 and 2016, as new petrochemical plant capacity increases the use of HGL as a feedstock. In addition, new HGL export terminal capacity contributes to an increase in HGL net exports from an average of 560,000 b/d in 2014 to 1.1 million b/d in 2016.

Liquid Fuels Supply

U.S. crude oil production is projected to increase from an average of 8.7 million b/d in 2014 to 9.4 million b/d in 2015 and then decrease to 9.0 million b/d in 2016. The forecast is about 0.1 million b/d lower and 0.4 million b/d lower for 2015 and 2016, respectively, than in July's STEO. The decrease in the crude oil production forecast reflects a lower oil price outlook that will reduce expected oil-directed rig counts and drilling and well-completion activities throughout the forecast period.

EIA estimates that U.S. crude oil production averaged 9.5 million b/d in the first half of 2015. This level is 0.3 million b/d higher than the average production during the fourth quarter of 2014, despite an almost 60% decline in the total U.S. oil-directed rig count since October 2014. The most recent production estimates indicate U.S. crude oil output was 9.5 million b/d in May. EIA estimates that total U.S. production was unchanged in April and began declining in May, falling 180,000 b/d from the April level. Some of this decline reflects outages in the Gulf of Mexico that are expected to be temporary. The decrease in total production was preceded by declines in onshore production, which began in April.

EIA expects U.S. crude oil production declines to continue through the third quarter of 2016, when total crude oil production is forecast to average 8.8 million b/d. Forecast production begins rising in late 2016, returning to an average of 9.1 million b/d in the fourth quarter. A total of 13 projects are scheduled to come online in the Gulf of Mexico in 2015 and 2016, pushing up Gulf of Mexico production from an average of 1.4 million b/d in the fourth quarter of 2014 to more than 1.6 million b/d in the same period of 2016.

Expected crude oil production declines from May 2015 through the third quarter of 2016 are largely attributable to unattractive economic returns in some areas of both emerging and mature onshore oil production regions, as well as seasonal factors such as anticipated hurricane-related production disruptions in the Gulf of Mexico. Reductions in 2015 cash flows and capital expenditures have prompted companies to defer or redirect investment away from marginal exploration and research drilling to focus on core areas of major tight oil plays. Reduced investment has resulted in the lowest count of oil-directed rigs in nearly five years and well completions that are significantly behind 2014 levels.

Oil prices, particularly in the second quarter of 2015, remained high enough to support continued development drilling in the core areas of the Bakken, Eagle Ford, Niobrara, and Permian basins, with July showing the first month-to-month increase in the oil-directed rig count since October 2014. However, the recent fall in crude oil prices and lowered outlook for oil prices over the forecast period are expected to prolong and deepen onshore production declines. Lower crude oil prices are anticipated to slow the rate of recovery in onshore drilling activities and well completion totals, despite continued increases in rig and well productivity and falling drilling and completion costs. The forecast remains sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators.

While projected oil production in the Gulf of Mexico rises during the forecast period, Alaska oil production falls. Production in these areas is less sensitive to short-term price movements than onshore production in the Lower 48 states and reflects anticipated growth from new projects and declines from legacy fields.

HGL production at natural gas processing plants reached a record level of 3.31 million b/d in April 2015, and it is projected to average 3.28 million b/d in 2015 and 3.53 million b/d in 2016. EIA expects higher ethane recovery rates in 2016 following planned increases in petrochemical plant feedstock demand. Export terminal expansions will allow for higher quantities of domestically produced ethane, propane, and butanes to reach the international market.

U.S. petroleum product gross exports continue to grow, up almost 0.5 million b/d (13%) in the first five months of 2015 compared with the same period in 2014. More than half of the growth in liquid fuel exports came from HGL. The increase in refined product exports, combined with the growth in domestic liquid fuels consumption, contributed to U.S. refinery utilization rates averaging 89.9% over the first five months, up from 88.1% last year and the highest rate for this period since 2005. Gross inputs to U.S. refineries exceeded 17 million b/d in each of the last four weeks of July, a level that had not previously been reached or exceeded in any week since EIA began publishing the data in 1990.

Petroleum Product Prices

Rising crude oil prices, strong demand for U.S. gasoline, and several refinery outages in the Midwest and West Coast contributed to an increase in U.S. regular gasoline retail prices from a monthly average of $2.47/gal in April to $2.79/gal in July. EIA expects monthly average prices to decline in the coming months as refineries continue to produce high levels of gasoline, as demand begins to decrease following the peak in the summer driving season, and as the market transitions to lower-cost winter-grade gasoline. EIA projects regular gasoline retail prices to average $2.60/gal during the third quarter of 2015 and $2.11/gal in the fourth quarter.

The U.S. regular gasoline retail price, which averaged $3.36/gal in 2014, is projected to average $2.41/gal in 2015, 7 cents/gal lower than in July's STEO, and $2.40/gal in 2016, which is 15 cents/gal lower than in July's STEO.

The diesel fuel retail price, which averaged $3.83/gal in 2014, is projected to fall to an average of $2.73/gal in 2015, 13 cents/gal lower than in July's STEO, and then rise to $2.81/gal in 2016, 23 cents/gal lower than in last month's STEO.

As with 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 reformulated blendstock for oxygenate blending (RBOB) futures contracts for November 2015 delivery, traded over the five-day period ending August 6, averaged $1.45/gal. The probability that the RBOB futures price will exceed $1.85/gal (consistent with a U.S. average regular gasoline retail price above $2.50/gal) in November 2015 is about 7%.

U.S. Petroleum and Other Liquids
  2013 2014 2015 2016
Crude Oil prices (dollars per barrel)
WTI Spot Average 97.98 93.17 49.62 54.42
Brent Spot Average 108.56 98.89 54.40 59.42
Imported Average 98.12 89.65 46.62 50.95
Refiner Average Acquisition Cost 100.46 92.05 48.82 53.43
Retail prices including taxes (dollars per gallon)
Regular Gasoline 3.51 3.36 2.41 2.40
Diesel Fuel 3.92 3.83 2.73 2.81
Heating Oil 3.78 3.72 2.73 2.67
Production (million barrels per day)
Crude Oil 7.46 8.71 9.36 8.96
Natural Gas Plant Liquids 2.61 2.96 3.28 3.53
Fuel Ethanol 0.87 0.94 0.95 0.94
Biodiesel 0.089 0.081 0.091 0.098
Consumption (million barrels per day)
Motor Gasoline 8.84 8.92 9.13 9.14
Distillate Fuel Oil 3.83 4.01 4.05 4.15
Jet Fuel 1.43 1.47 1.50 1.50
Total Consumption 18.96 19.03 19.43 19.62
Primary Assumptions (percent change from previous year)
U.S. Real GDP Growth 2.2 2.4 2.2 3.0
Heating Degree Days 18.5 1.9 -3.2 -4.3
Distillate-weighted Industrial Production 2.9 3.5 1.6 3.1

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