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Short-Term Energy Outlook

Release Date: February 9, 2016  |  Next Release Date: March 8, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures

U.S. Petroleum and Other Liquids

Growing domestic and global consumption of gasoline contributed to high refinery wholesale gasoline margins (the difference between the wholesale price of gasoline and the price of Brent crude oil) for most of 2015. However, low crude oil prices have more than offset high wholesale gasoline margins, contributing to retail regular gasoline prices falling to an average of $1.95/gal in January. Monthly average regional gasoline retail prices for January ranged from a low of $1.69/gal in PADD 3 (Gulf Coast) to a high of $2.57/gal in PADD 5 (West Coast), which continues to experience refinery disruptions. EIA expects the U.S. regular gasoline retail price to average $1.82/gal in February 2016, which would be the lowest average monthly price since January 2009.

Liquid Fuels Consumption

Total U.S. liquid fuels consumption increased by an estimated 270,000 b/d (1.4%) in 2015. U.S. consumption has been stimulated by growth in employment and the economy and lower petroleum product prices. Liquid fuels consumption is forecast to increase by 120,000 b/d (0.6%) in 2016 and by an additional 260,000 b/d (1.3%) in 2017.

Motor gasoline consumption increased by an estimated 240,000 b/d (2.6%) in 2015 to an average of 9.2 million b/d, the highest level since the record 9.3 million b/d in 2007. Although total nonfarm employment and total highway travel have increased by 2.9% and 3.7% respectively, since 2007, improving vehicle fuel economy continues to keep gasoline consumption below its previous peak throughout the forecast period. Gasoline consumption is forecast to increase by 70,000 b/d (0.8%) in 2016, as employment and population growth offset continuing improvements in vehicle fleet fuel economy. In 2017, motor gasoline consumption is projected to be flat.

In 2015, jet fuel consumption increased by an estimated 70,000 b/d (4.7%). Forecast jet fuel consumption falls slightly in 2016, with improvement in average airline fleet fuel economy offsetting growth in freight and passenger travel. In 2017, jet fuel consumption is projected to rise by 20,000 b/d (1.0%).

Consumption of distillate fuel, which includes diesel fuel and heating oil, fell by an estimated 70,000 b/d (1.8%) in 2015. Based on expectations of economic growth, forecast distillate consumption grows by an average of 60,000 b/d (1.6%) per year over the next two years.

Hydrocarbon gas liquids (HGL) consumption is expected to be unchanged in 2016 and then increase by 130,000 b/d in 2017. The growth in 2017 is mainly because of increased ethane consumption resulting from the start-up of five ethane-fed petrochemical plants. New HGL export terminal capacity facilitates growth in HGL net exports of 1.3 million b/d in 2017, up from an estimated 830,000 b/d in 2015.

Liquid Fuels Supply

U.S. crude oil production is projected to decrease from an average of 9.4 million b/d in 2015 to 8.7 million b/d in 2016 and to 8.5 million b/d in 2017. The forecast reflects an extended decline in Lower 48 onshore production driven by persistently low oil prices that is partially offset by growing production in the federal Gulf of Mexico.

EIA estimates total U.S. production has fallen 0.6 million b/d since April 2015, to an average of 9.1 million b/d in January, with the entire production decline coming from Lower 48 onshore.

With WTI prices currently below $40/b and projected to remain below that level through mid-2016, EIA expects oil production to decline in most Lower 48 onshore oil production regions. The expectation of reduced cash flows in 2016 and 2017 has prompted many companies to scale back investment programs, deferring major new undertakings until a sustained price recovery occurs. The prospect of higher interest rates and tighter lending conditions will likely limit the availability of capital for many smaller producers, giving rise to distressed asset sales and consolidation of acreage holdings by more financially sound firms. Lower onshore investment is anticipated to reduce the count of oil-directed rigs and well completions in 2016 and 2017.

The focus of drilling and production activities will be on the core areas of major tight oil plays. Despite the significant decline in total rig counts in 2015, rig counts have largely stabilized in the core counties of the Bakken, Eagle Ford, Niobrara, and Permian. In these areas, falling costs and ongoing technological and process improvements in rig, labor, and well productivity are anticipated to lead to faster rates of well completions and less-rapid production declines relative to other Lower 48 onshore areas. The ongoing gains in learning-by-doing, cost reductions, and rig and well productivity are expected to enhance the economic viability of these areas and to be adopted in other regions, incrementally reducing the breakeven costs of oil production in more marginal areas.

EIA expects U.S. crude oil production to decline from 9.1 million b/d in January 2016, falling below 8.5 million b/d on average in the third quarter of 2016. Production is forecast to stay near 8.5 million b/d for most of 2017, with the exception of the third quarter, when the forecast includes some hurricane-related disruptions in the Gulf of Mexico. Production of 8.5 million b/d would be 1.2 million b/d below the April 2015 level, which was the highest monthly production since April 1971.

Although total U.S. crude oil production is expected to level off in late 2016, onshore Lower 48 production is expected to continue falling into the third quarter of 2017. However, productivity improvements, lower breakeven costs, and anticipated oil price increases are expected to end more than two years of declines in Lower 48 onshore production before the end of 2017. Onshore production averaged 7.6 million b/d in the second quarter of 2015, and it is forecast to fall below 6.2 million b/d in the third quarter of 2017 before increasing modestly in the fourth quarter of 2017. The forecast remains sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators.

Projected crude oil production in the Gulf of Mexico rises during the forecast period, and oil production in Alaska falls. Production in these areas is less sensitive than onshore production in the Lower 48 states to short-term price movements and reflects anticipated growth from new projects in the Gulf of Mexico and declines from legacy fields in Alaska. Several projects in the Gulf that began operations or will begin operations in 2014-16 will push up production from an average of 1.5 million b/d in 2015 to 1.8 million b/d in the fourth quarter of 2017. It is possible some projects will start production later than expected, potentially shifting some of the anticipated production gains from late 2017 into early 2018.

Late in the forecast period EIA expects small crude oil sales from the U.S. Strategic Petroleum Reserve (SPR). Recent legislation authorized sales of SPR oil between fiscal years (FY) 2018 and 2025 for deficit reduction, SPR modernization, and highway funding purposes. EIA assumes 5 million barrels of SPR sales for deficit reduction purposes in FY 2018 (which starts in October 2017), equivalent to 14,000 b/d of SPR draws during the fourth quarter of 2017. EIA further assumes no SPR sales occur for SPR modernization during the forecast period.

EIA projects HGL production at natural gas processing plants will increase by 0.2 million b/d (5.7%) in 2016 and by 0.3 million b/d (8.9%) in 2017. Expected additions of natural gas processing and distribution infrastructure contribute to forecast HGL production growing at a faster pace than the natural gas streams from which it is produced. EIA expects higher ethane recovery rates in 2016 and 2017, following planned increases to petrochemical plant feedstock demand 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 1.3 million b/d in 2017.

Petroleum Product Prices

Lower crude oil prices contributed to U.S. regular gasoline retail prices declining to an average of $1.95/gal in January, down from an average of $2.04/gal in December. EIA projects regular gasoline retail prices to fall to $1.82/gal in February 2016 and average $1.88/gal in the first quarter of 2016, before rising during the spring.

The U.S. regular gasoline retail price, which averaged $2.43/gal in 2015, is projected to average $1.98/gal in 2016, which would be the lowest annual average since 2004, and $2.21/gal in 2017.

The diesel fuel retail price, which averaged $2.71/gal in 2015, is projected to average $2.22/gal in 2016, 6 cents/gal lower than in last month's STEO, and $2.58/gal in 2017.

Lower projected crude oil prices this winter (2015-16) and warmer temperatures compared with last winter have contributed to a reduction in forecast average household heating oil expenditures. Households that use heating oil as a primary space heating fuel are expected to pay an average of $2.12/gal this winter, 92 cents/gal less than last winter. The average household is now expected to spend $1,054 for heating oil this winter, $798 less than last winter. The reduction in expenditures also reflects lower forecast consumption because warmer temperatures are forecast this winter compared with last winter.

Propane prices this winter are expected to be 10% lower than last winter in the Northeast and 22% lower in the Midwest, contributing to households spending 25% and 34% less on propane in those regions, respectively.

U.S. Petroleum and Other Liquids
  2014 2015 2016 2017
Crude Oil prices (dollars per barrel)
WTI Spot Average 93.17 48.67 37.59 50.00
Brent Spot Average 98.89 52.32 37.52 50.00
Imported Average 89.63 46.42 34.15 46.63
Refiner Average Acquisition Cost 92.05 48.50 36.58 49.12
Retail prices including taxes (dollars per gallon)
Regular Gasoline 3.36 2.43 1.98 2.21
Diesel Fuel 3.83 2.71 2.22 2.58
Heating Oil 3.72 2.65 2.09 2.41
Production (million barrels per day)
Crude Oil 8.71 9.43 8.69 8.46
Natural Gas Plant Liquids 3.01 3.27 3.45 3.76
Fuel Ethanol 0.93 0.96 0.97 0.97
Biodiesel 0.083 0.084 0.107 0.112
Consumption (million barrels per day)
Motor Gasoline 8.92 9.16 9.23 9.23
Distillate Fuel Oil 4.04 3.96 3.99 4.09
Jet Fuel 1.47 1.54 1.53 1.55
Total Consumption 19.11 19.38 19.49 19.75
Primary Assumptions (percent change from previous year)
U.S. Real GDP Growth 2.4 2.4 2.5 3.1
Heating Degree Days 1.9 -10.2 0.3 2.9
Distillate-weighted Industrial Production 2.5 1.4 1.9 3.3

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