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Short-Term Energy Outlook

Release Date: January 10, 2017  |  Next Release Date: February 7, 2017  |  Full Report    |   Text Only   |   All Tables   |   All Figures

U.S. Liquid Fuels

Consumption

Total U.S. liquid fuels consumption increased by an estimated 60,000 b/d (0.3%) in 2016, as growth in motor gasoline, residual fuel oil, and jet fuel consumption was partially offset by a decline in distillate fuel consumption. Liquid fuels consumption is forecast to increase by 260,000 b/d (1.3%) in 2017 and by an additional 380,000 b/d (1.9%) in 2018.

Hydrocarbon gas liquids (HGL) consumption is expected to be a major contributor to overall U.S. liquid fuels consumption growth in the forecast period. HGL consumption fell by an estimated 30,000 b/d (1.1%) in 2016, but it is projected to increase by 90,000 b/d (3.7%) in 2017 and by 200,000 b/d (7.7%) in 2018.

Most of the forecast growth comes from new ethylene-producing petrochemical plants that will use ethane as their feedstock. Ethane consumption, which averaged an estimated 1.1 million b/d in 2016, is forecast to increase by 110,000 b/d (9.4%) in 2017 and by 180,000 b/d (14.4%) in 2018 as new ethylene producing petrochemical plants require more ethane as feedstock. The first in a series of new ethylene plants is scheduled to come online in the first quarter of 2017, at Ingleside, Texas. By mid-2018, six new plants and one previously de-activated plant, capable of using a combined 420,000 b/d of ethane feedstock, are expected to begin operations. Most of these plants are designed specifically to use ethane without the ability to switch to other feedstocks.

Motor gasoline consumption increased by an estimated 100,000 b/d (1.1%) to 9.28 million b/d in 2016. The increase in gasoline consumption reflects 2.6% growth 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 increase by 40,000 b/d (0.5%) in 2017 and by 90,000 b/d (0.9%) in 2018. In the forecast, gasoline consumption growth is expected to moderate slightly from 2016 levels, as highway travel growth slows to 1.2% and 1.6% in 2017 and 2018, respectively. Lower growth in highway travel reflects forecasts for slower employment growth and rising gasoline prices. If forecast growth in gasoline consumption is realized in 2017, it would surpass the previous record high level of consumption set in 2007.

Jet fuel consumption increased by an estimated 60,000 b/d (3.6%) in 2016. In the forecast, continued growth in passenger and freight activity is offset by fuel efficiency increases, resulting in roughly unchanged jet fuel consumption through 2018.

Consumption of distillate fuel, which includes diesel fuel and heating oil, declined by an estimated 140,000 b/d (3.5%) in 2016. That decline is the result of warmer-than-normal 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, increasing oil and natural gas drilling activity, and an assumption of normal temperatures contribute to forecast distillate fuel consumption growth of 110,000 b/d (2.9%) in 2017 and 70,000 b/d (1.9%) in 2018.

Supply

EIA estimates that total U.S. crude oil production averaged 8.9 million b/d in 2016, a decline of 0.5 million b/d from 2015 levels, with all of the production decline in the Lower 48 onshore. However, based on the latest available monthly data from October and production estimates from November and December, EIA estimates that production began increasing in the fourth quarter of 2016, averaging 8.9 million b/d for the quarter, up from an average of 8.7 million b/d in the third quarter. If confirmed in final data, this would be the first quarterly production increase since the first quarter of 2015. Although most of the fourth-quarter increase came from the federal Gulf of Mexico, EIA estimates that Lower 48 onshore production also increased by almost 60,000 b/d.

EIA forecasts U.S. crude oil production will increase to an average of 9.0 million b/d in 2017 and to 9.3 million b/d in 2018. Production levels in 2017 are 0.2 million b/d higher than in the previous forecast. The upward revision largely reflects assumptions of higher drilling activity, drilling efficiency, and well-level productivity than assumed in previous forecasts. On a quarterly basis, EIA expects U.S. crude oil production to increase from 8.9 million b/d in the fourth quarter of 2016 to 9.4 million b/d in the fourth quarter of 2018. In the third quarters of both 2017 and 2018, crude oil production decreases because EIA assumes some production declines as a result of hurricane-related outages.

EIA expects Lower 48 onshore crude oil production to average 6.8 million b/d in 2017, up slightly from the 2016 level. In 2018, EIA expects Lower 48 production to increase by almost 0.2 million b/d. EIA expects that declines in Lower 48 onshore crude oil production have largely ended, and production will be relatively flat in the first quarter of 2017 compared with the previous quarter, averaging 6.7 million b/d. Lower 48 crude oil production is then expected to increase at an average month-over-month rate of 20,000 b/d from April 2017 through March 2018 before leveling at just under 7.0 million b/d from April 2018 through December 2018. The growth in Lower 48 onshore crude oil production primarily reflects increased oil production in the Permian Basin in Texas and New Mexico.

In previous forecasts, EIA had expected Lower 48 onshore production to generally decline through the end of 2017. The change in the current forecast reflects crude oil prices that have been higher than forecast in recent months, allowing producers to increase active rigs at a faster pace than expected. Additionally, it reflects the incorporation into EIA's models of continuous productivity improvements and lower breakeven costs. However, the forecast remains very sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators. EIA expects the WTI price, which is used as a proxy for wellhead prices, to average $52/b in 2017 and $55/b in 2018. The current price outlook is expected to support onshore drilling and well completions, which are expected to be complemented by continued increases in rig and well productivity along with falling drilling and completion costs.

There is a lag of roughly six months in the relationship between oil price changes and realized production. Thus, the estimated increases in production in the fourth quarter of 2016 are the cumulative result of price increases during the first half of 2016. As U.S. production increases are realized in a global market that is still building inventories, EIA expects those production increases will moderate further price increases, which in turn will limit further production increases through 2017.

Gulf of Mexico production is forecast to average 1.7 million b/d in 2017, an increase of 0.1 million b/d from 2016, and then increase to 1.9 million b/d in 2018. The anticipated expansion of the Tahiti field (in the Gulf of Mexico) and start of production from the Horn Mountain Deep field in 2017 and the Big Foot and Stampede projects in 2018, along with other projects that will begin operations in 2017 and 2018, are expected to contribute to the increase in the Gulf's production.

Crude oil production in Alaska is expected to be unchanged in both 2017 and 2018 at almost 0.5 million b/d.

EIA projects that HGL production at natural gas processing plants will increase by 0.2 million b/d in 2017 and by 0.4 million b/d in 2018. EIA expects higher ethane recovery rates in 2017 and 2018, following planned increases in demand for petrochemical plant feedstock in the United States and abroad. Recently opened terminals, a growing ship fleet, and pipeline expansions allow more U.S. ethane, propane, and butanes to reach international markets, with forecast net HGL exports expected to increase by 0.2 million b/d in 2017 and by 0.1 million b/d in 2018.

Product Prices

EIA expects the retail price of regular gasoline to average $2.31/gal during the first quarter of 2017, 15 cents/gal higher than projected in last month's STEO, primarily as a result of higher crude oil prices and stronger forecast refinery margins. EIA expects that the U.S. monthly average retail price of regular gasoline will increase from $2.31/gal in January 2017 to a high of $2.50/gal in June before falling to $2.21/gal in December. The U.S. regular gasoline retail price, which averaged $2.15/gal in 2016, is forecast to average $2.38/gal in 2017 and $2.41/gal in 2018.

There is significant variation in the regional forecast for retail gasoline prices. Annual average forecast prices for 2017 range from a low of $2.14/gal in the Gulf Coast—Petroleum Administration for Defense District (PADD) 3—to a high of $2.75/gal in the West Coast (PADD 5).

Refinery wholesale gasoline margins (the difference between the wholesale price of gasoline and the price of Brent crude oil) averaged 35 cents/gal in December. This level was lower than the 45 cents/gal average in December 2015, but it was 24 cents/gal higher than the five-year average for December. Higher U.S. gasoline production and inventory levels in 2016 contributed to refinery wholesale gasoline margins averaging 42 cents/gal for the year, which was down 6 cents/gal from 2015 levels. Despite the rising gasoline production and high inventory levels, margins remain above the five-year average as gasoline consumption is estimated to be up 1.1% in 2016 compared with 2015, and total gasoline exports were up 24% through October 2016 compared with the same period in 2015. Refinery wholesale gasoline margins are expected to average 37 cents/gal in 2017 and 33 cents/gal in 2018.

The diesel fuel retail price averaged $2.31/gal in 2016, which was the lowest annual average since 2004. The diesel price is forecast to average $2.73/gal in 2017 and $2.84/gal in 2018, driven higher primarily by higher crude oil prices and growing diesel consumption, which is expected to contribute to higher diesel refinery margins.


U.S. Petroleum and Other Liquids
  2015 2016 2017 2018
Crude Oil prices (dollars per barrel)
WTI Spot Average 48.67 43.33 52.50 55.18
Brent Spot Average 52.32 43.74 53.50 56.18
Imported Average 46.34 38.75 49.00 51.70
Refiner Average Acquisition Cost 48.40 40.89 51.51 54.21
Retail prices including taxes (dollars per gallon)
Regular Gasoline 2.43 2.15 2.38 2.41
Diesel Fuel 2.71 2.31 2.73 2.84
Heating Oil 2.65 2.11 2.63 2.73
Production (million barrels per day)
Crude Oil 9.42 8.89 9.00 9.30
Natural Gas Plant Liquids 3.34 3.48 3.70 4.07
Fuel Ethanol 0.97 1.00 1.00 1.02
Biodiesel 0.082 0.099 0.104 0.111
Consumption (million barrels per day)
Motor Gasoline 9.18 9.28 9.32 9.41
Distillate Fuel Oil 4.00 3.86 3.97 4.04
Jet Fuel 1.55 1.60 1.61 1.61
Total Consumption 19.53 19.59 19.85 20.22
Primary Assumptions (percent change from previous year)
U.S. Real GDP Growth 2.6 1.6 2.3 2.6
Heating Degree Days -10.2 -5.9 6.7 -0.2
Distillate-weighted Industrial Production 1.0 0.5 1.0 2.3

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