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Short-Term Energy Outlook

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

U.S. Petroleum and Other Liquids

Falling crude oil prices and high inventories of gasoline helped U.S. weekly regular gasoline retail prices fall to an average of $2.04/gal on January 26, the lowest weekly price since April 6, 2009 (EIA, This Week in Petroleum, January 22, 2015). U.S. average weekly regular gasoline retail prices have since increased to $2.09/gal as of February 9. In January, monthly average regional gasoline retail prices ranged from a low of $1.90/gal in Petroleum Administration for Defense District (PADD) 3 to a high of $2.45/gal in PADD 5. EIA expects retail gasoline prices to average $2.13/gal during the first quarter of 2015 and $2.33/gal for the full year.

Liquid Fuels Consumption

Total U.S. liquid fuels consumption rose by an estimated 60,000 bbl/d (0.3%) in 2014. Motor gasoline consumption increased by 80,000 bbl/d (0.8%) reflecting an increase in highway travel that was partially offset by fleetwide increases in fuel efficiency. Distillate consumption grew by 160,000 bbl/d (4.2%), as a result of colder-than-average weather in the first quarter as well as increases in industrial production. Jet fuel consumption increased by 30,000 bbl/d (2.2%). Hydrocarbon gas liquids (HGL) and residual fuel oil consumption fell by an estimated 100,000 bbl/d (4.1%) and 60,000 bbl/d (19.7%), respectively.

In 2015, total liquid fuels consumption is forecast to grow by 290,000 bbl/d (1.5%). Lower pump prices contribute to an 80,000-bbl/d increase (0.9%) in motor gasoline consumption. HGL consumption is expected to reverse 2014's decline, increasing by 140,000 bbl/d (5.7%). Consumption of distillate fuel is projected to increase by 80,000 bbl/d, driven largely by expanding industrial production. Additionally, some of the growth in distillate fuel consumption comes from Annex VI to the International Convention for the Prevention of Pollution from Ships (MARPOL Annex VI), which is an international agreement that generally requires the use of fuels below 1,000 parts per million sulfur by marine vessels in most U.S. waters, unless alternative devices, procedures, or compliance methods are used to achieve equivalent emissions reductions. The increase in marine distillate use because of MARPOL regulations will displace the use of residual fuel oil.

EIA projects that in 2016 liquid fuels consumption growth will slow to 100,000 bbl/d (0.5%). Motor gasoline consumption declines by 50,000 bbl/d (0.5%) as the annual average retail gasoline price is projected to increase 17% from the 2015 level. Continuing industrial growth contributes to a 100,000 bbl/d (3.9%) increase in HGL consumption and a 60,000 bbl/d (1.5%) increase in distillate use. Jet fuel consumption declines by 10,000 bbl/d (0.4%) despite moderate increases in air travel, as the introduction of new aircraft improves fuel efficiency.

Liquid Fuels Supply

Forecast U.S. crude oil production increases from an average of 8.6 million bbl/d in 2014 to 9.3 million bbl/d in 2015 and 9.5 million bbl/d in 2016. With WTI crude oil prices expected to average $50/bbl in the first half of 2015, EIA expects 2015 drilling activity to decline because of unattractive economic returns in some areas of both emerging and mature oil production regions. Many companies have begun redirecting investment away from marginal exploration and research drilling and focusing on core areas of major tight oil plays. Projected 2015 oil prices remain high enough to support some development drilling activity in the Bakken, Eagle Ford, Niobrara, and Permian Basin, albeit at lower levels than previously forecast. Companies that have lower drilling and debt costs and have acreage in the sweet spots of these regions will continue to drill highly productive wells in 2015.

Nevertheless, EIA expects 2015 production to reach 9.4 million bbl/d in the second quarter, then decline by 180,000 bbl/d in the third quarter. With projected WTI crude oil prices rising in the second half of 2015, drilling activity is expected to increase again as companies take advantage of lower costs for both leasing acreage and drilling services, resulting in growing production despite the relatively low WTI price. A notable risk to the production forecast is that some drilled wells will not be completed. EIA will continue monitoring the inventory of uncompleted wells to inform the production forecast. Additionally, this forecast remains particularly sensitive to actual prices available at the wellhead and drilling economics that vary across regions and operators. Projected production for the federal offshore region and Alaska, which rise and fall respectively, are less sensitive to short-term price movements than onshore production in the Lower 48 states.

HGL production at natural gas liquids plants, which reached a record high of 3.1 million bbl/d in October, is projected to increase to 3.3 million bbl/d by the end of 2015. Ethane and propane are expected to contribute most to the projected growth, with most of the production supplying domestic petrochemical demand or exports. EIA expects higher rates of ethane recoveries as a result of planned increases in petrochemical facility feedstock demand, while export terminal expansions will allow higher quantities of domestically produced propane and butanes to reach the international market.

The growth in domestic production has contributed to a significant decline in imports of crude oil and other liquids. The share of total U.S. liquid fuels consumption met by net imports fell from 60% in 2005 to an estimated 27% in 2014. EIA expects the net import share to decline to 20% in 2016, which would be the lowest level since 1968.

Petroleum Product Prices

U.S. average regular gasoline retail prices averaged $2.12/gal in January, the lowest monthly average since April 2009. The U.S. regular gasoline retail price, which averaged $3.36/gal in 2014, is projected to average $2.33/gal in 2015 and $2.73/gal in 2016, almost 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 $2.83/gal in 2015 and then rise to $3.24/gal in 2016.

The May 2015 New York Harbor reformulated blendstock for oxygenate blending (RBOB) futures contract averaged $1.77/gal for the five trading days ending February 5, 2015, and has a 15% 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 5% 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 8% 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.

Lower projected crude oil prices also contribute to lower expected residential heating oil prices. Average retail heating oil prices are expected to average $2.96/gal this winter, $0.92/gal lower than last winter. The average household that uses heating oil as its primary space heating fuel is now expected to spend $1,645 for heating this winter, $710 lower than last winter. Propane prices are expected to be 17% lower in the Northeast and 27% lower in the Midwest compared with last winter, resulting in households spending 23% and 35% less on propane in those regions, respectively.

U.S. Petroleum and Other Liquids
  2013 2014 2015 2016
Crude Oil prices (dollars per barrel)
WTI Spot Average 97.91 93.26 55.02 71.00
Brent Spot Average 108.64 99.02 57.56 75.00
Imported Average 98.12 89.39 51.57 67.53
Refiner Average Acquisition Cost 100.46 91.88 54.12 70.05
Retail prices including taxes (dollars per gallon)
Regular Gasoline 3.51 3.36 2.33 2.73
Diesel Fuel 3.92 3.83 2.83 3.24
Heating Oil 3.78 3.73 2.74 3.03
Production (million barrels per day)
Crude Oil 7.45 8.63 9.30 9.52
Natural Gas Plant Liquids 2.61 2.96 3.21 3.49
Fuel Ethanol 0.87 0.93 0.94 0.94
Biodiesel 0.089 0.080 0.084 0.084
Consumption (million barrels per day)
Motor Gasoline 8.84 8.92 9.00 8.95
Distillate Fuel Oil 3.83 3.99 4.07 4.13
Jet Fuel 1.43 1.47 1.48 1.47
Total Consumption 18.96 19.02 19.31 19.41
Primary Assumptions (percent change from previous year)
U.S. Real GDP Growth 2.2 2.4 3.1 2.5
Heating Degree Days 18.5 1.9 -7.5 -0.1
Distillate-weighted Industrial Production 2.9 3.5 3.8 3.4

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