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Short-Term Energy Outlook

Release Date: August 9, 2016  |  Next Release Date: September 7, 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 July. This level was similar to the previous five-year average for July of 41 cents/gal but lower than the 73 cents/gal average in July 2015, partly because of higher U.S. gasoline production and inventory levels. Higher gasoline inventories have contributed to falling gasoline margins despite gasoline consumption having been 2.3% higher through the first seven months of 2016 compared with the same period last year according to EIA estimates.

The U.S. average regular gasoline retail price decreased to $2.24/gal in July, 13 cents/gal lower than in June, reflecting lower crude oil prices and elevated seasonal gasoline inventories. Monthly average retail gasoline prices for July 2016 ranged from a low of $2.03/gal in the Gulf Coast—Petroleum Administration for Defense District (PADD) 3—to a high of $2.72/gal in the West Coast (PADD 5). EIA expects 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 170,000 b/d (0.9%) in 2016 and by an additional 90,000 b/d (0.5%) in 2017.

Motor gasoline consumption is forecast to increase by 150,000 b/d (1.7%) to 9.31 million b/d in 2016, which would make it the highest annual average gasoline consumption on record, surpassing the previous record set in 2007. The increase in gasoline consumption reflects a forecast 2.3% 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 in 2017 will be close to the 2016 average.

In 2015, jet fuel consumption increased by an estimated 70,000 b/d (4.7%). Jet fuel consumption is forecast to increase by 30,000 b/d (2.0%) in 2016 and remain unchanged in 2017, with improvements in average airline fleet fuel economy offset by 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 (2.4%) 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 60,000 b/d (1.6%).

Hydrocarbon gas liquids (HGL) consumption is forecast to remain flat in 2016, and then rise by 50,000 b/d (2.2%) in 2017, as increased ethane consumption more than offsets reduced consumption of other HGL. U.S. ethane consumption is forecast to increase by 60,000 b/d (5.6%) in 2016, as expansion projects at ethylene-producing petrochemical plants increase feedstock demand for ethane. In 2017, forecast ethane consumption increases by an additional 80,000 b/d (7.5%), 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 8.7 million b/d in 2016 and to 8.3 million b/d in 2017. The forecast reflects declining Lower 48 onshore production that is partly offset by growing production in the federal Gulf of Mexico. EIA estimates that total U.S. crude oil production has fallen by 1.1 million b/d since April 2015 to an average of 8.6 million b/d in July 2016. Almost all of the production decline was in the Lower 48 onshore.

Based on the current oil price forecast, EIA expects oil production to continue declining in most Lower 48 onshore oil production regions through mid-2017. 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 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 firms that are more financially sound. Lower onshore investment is expected to reduce the count of oil-directed rigs and well completions for the remainder of 2016 and 2017.

The current price outlook is expected to limit onshore drilling and well completions, despite continued increases in rig and well productivity and falling drilling and completion costs. The increase in oil prices between February 2016 and June 2016 contributed to active rig counts rising from 404 in late May to 464 for the week ending August 5. However, this total is still down from more than 600 rigs in January 2016. In EIA's forecast, low rig counts continue to limit production through 2017.

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 8.2 million b/d in the third quarter of 2017. Production of 8.2 million b/d would be 1.5 million b/d below the April 2015 level, which was the highest monthly production since April 1971. Production is expected to fall most rapidly from April 2016 through September 2016, declining by an average of 150,000 b/d each month. Production is then expected to be relatively flat from October 2016 through July 2017, averaging 8.4 million b/d. EIA's assumption of hurricane-related outages lowers the forecast third-quarter 2017 average to 8.2 million b/d, after which production is expected to begin to rise. Increases in production in late 2017 reflect 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.

Projected crude oil production during the forecast period rises in the Gulf of Mexico and falls in Alaska. Production in these areas is less sensitive to short-term price movements than onshore production in the Lower 48 states. These changes reflect anticipated growth from new projects in the Gulf of Mexico and declines from legacy fields in Alaska. Although production in Alaska is expected to decrease in response to BP's recent reduction in drilling rigs in the Alaska North Slope, ConocoPhillips brought two projects online, and ExxonMobil brought another project online in the region that could moderate Alaska's production declines. 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 2017, are expected to help increase the region's production from an average of 1.5 million b/d in 2015 to 1.9 million b/d in the fourth quarter of 2017. Some projects may start production later than expected, potentially shifting some of the anticipated production gains from late 2017 into early 2018.

EIA projects that HGL production at natural gas processing plants will 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 $2.19/gal during the 2016 summer driving season (April through September), 6 cents/gal lower than projected in last month's STEO and 44 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 $2.05/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 $2.06/gal in 2016 and $2.26/gal in 2017, 6 cents/gal and 2 cents/gal lower, respectively, from the July STEO.

The diesel fuel retail price averaged $2.71/gal in 2015. Diesel prices are forecast to average $2.30/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 41.16 51.58
Brent Spot Average 98.89 52.32 41.60 51.58
Imported Average 89.63 46.35 37.16 48.25
Refiner Average Acquisition Cost 92.05 48.40 39.44 50.71
Retail prices including taxes (dollars per gallon)
Regular Gasoline 3.36 2.43 2.06 2.26
Diesel Fuel 3.83 2.71 2.30 2.70
Heating Oil 3.71 2.65 2.11 2.60
Production (million barrels per day)
Crude Oil 8.71 9.43 8.73 8.31
Natural Gas Plant Liquids 3.01 3.27 3.53 3.80
Fuel Ethanol 0.93 0.97 0.98 0.98
Biodiesel 0.083 0.082 0.099 0.106
Consumption (million barrels per day)
Motor Gasoline 8.92 9.16 9.31 9.30
Distillate Fuel Oil 4.04 3.98 3.88 3.94
Jet Fuel 1.47 1.54 1.57 1.57
Total Consumption 19.11 19.40 19.56 19.66
Primary Assumptions (percent change from previous year)
U.S. Real GDP Growth 2.4 2.4 1.9 2.5
Heating Degree Days 1.9 -10.2 -2.6 4.0
Distillate-weighted Industrial Production 0.8 1.0 0.8 2.0

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