‹ Analysis & Projections

Short-Term Energy Outlook

Release Date: September 12, 2017  |  Next Release Date: October 11, 2017  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Crude Oil

Prices: Crude oil benchmark Brent front-month futures prices increased by $2.71 per barrel (b) from August 1, settling at $54.49/b on September 7. The West Texas Intermediate (WTI) crude oil price declined 7 cents/b during the same period, settling at $49.09/b (Figure 1). August Brent and WTI monthly average spot prices were $3.28/b and $1.41/b higher, respectively, than the July average spot prices.

Figure 1: Crude oil front month futures prices

U.S. crude oil and petroleum product markets were significantly disrupted by Hurricane Harvey's landfall in Texas and Louisiana at the end of August. At the peak of disruption, an estimated 3.9 million barrels per day (b/d) of U.S. Gulf Coast refining capacity was taken offline. Oil transportation capacity in the region was also restricted after the hurricane.

According to the Department of Energy's hurricane Situation Reports, as of September 11, 0.7 million b/d of refining capacity on the U.S. Gulf Coast remained offline, and an additional 3.6 million b/d was operating at reduced rates and/or had begun to restart operations. After averaging 17.1 million b/d in August, EIA estimates that U.S. refinery runs will average 15.3 million b/d in September and 15.9 million b/d in October, which are 1.5 million b/d and 0.1 million b/d lower, respectively, than projected in the August STEO. Ports and crude oil pipelines along the Texas Gulf Coast were closed because of the hurricane. These closures limited the movement of crude oil in the region. The lower refinery demand for crude oil and limited ability to move crude oil resulted in crude oil inventory builds at Cushing, Oklahoma and on the Gulf Coast of 0.8 million barrels and 1.7 million barrels, respectively, for the week ending September 1.

U.S. crude oil production is estimated to have averaged 9.2 million b/d in August, down about 40,000 b/d from the July average. Crude oil production in the Gulf of Mexico fell to a monthly average of 1.6 million b/d in August, down by 70,000 b/d from the July level. Producers also curtailed production in the Eagle Ford region of South Texas. However, production declines there were offset by growth in other areas of the Lower 48 states onshore region.

The petroleum supply system on the Gulf Coast was beginning to return to service at the time of publication. However, some facilities remain offline or operating at reduced rates. Certain ports in the region are open for limited vessel traffic, and some pipelines in Texas are beginning to resume operations. Several refineries had restarted, or were beginning to restart operations, but some might be offline for several more weeks. Additionally, oil producers have begun to ramp up production in areas that were disrupted.

Lower refinery demand for crude oil in the Gulf Coast region more than offset reductions in crude oil production as a result of the storm, which contributed to lower WTI prices, while simultaneously contributing to higher product prices. WTI front-month futures prices from August 28-31, the height of hurricane-related disruptions, were about $2/b lower than during the average price during the first 19 trading days of the month.

Despite lower WTI prices because of lower refinery demand for crude oil and transportation constraints, Brent prices were supported by global supply reductions. Libya's crude oil production declined by an estimated 150,000 b/d from July to August because of oil field closures. August oil production in Norway and the United Kingdom, the two main countries for North Sea oil production, fell by a combined 50,000 b/d from the July level, which led to the lowest amount of Brent crude oil scheduled for loading for the month of August since 2014. In addition, crude oil exports from the Organization of the Petroleum Exporting Countries (OPEC) declined by an estimated 1.3 million b/d from July to August.

Because of these diverging situations in the U.S. and global crude oil markets, front-month WTI prices fell against longer-dated contracts while Brent front-month prices increased. The Brent 1st–3rd futures price spread increased by 56 cents/b to 23 cents/b from August 1 to September 7, reaching a three-year high of 54 cents/b on August 21 (Figure 2). In addition, trade press reports indicated demand for North Sea crude oils from South America and Asia had increased, which may have kept Brent front-month prices elevated compared with later-dated contracts for most of August. In contrast, the WTI 1st–3rd futures price spread declined by 55 cents/b to –82 cents/b.

Figure 2: Crude oil front-month - 3rd month futures price spread

Crude oil price spreads: The spread between Brent and WTI futures prices rose to $5.00/b on August 29, which reflects lower refinery demand in the U.S. crude oil market (Figure 3). With the spread between international and domestic crude oil benchmarks rising, U.S. oil producers may find more export opportunities. Higher demand for U.S. crude oil from international customers, slower growth in U.S. crude oil production, and U.S. Gulf Coast refineries returning to normal operations could, however, eventually reduce the Brent-WTI price spread. EIA forecasts the WTI spot price to be $3.50/b lower than the Brent spot price in September and October before narrowing to $2.00/b lower in November, when domestic oil infrastructure is expected to be operating normally.

Prior to Hurricane Harvey, some domestic crude oil prices were increasing against the benchmark WTI crude oil priced at Cushing, Oklahoma. Both WTI priced in Midland, Texas and West Texas Sour (WTS) crude oils briefly reached a premium to benchmark WTI prices in mid- August. WTI Midland and WTS spot prices likely reached a premium because of increased demand for exports. Trade press reported that refineries in countries including India and South Korea have purchased WTI Midland crude oil for the first time.

However, near the end of August, WTI Midland and WTS spot prices weakened against WTI Cushing spot prices. The decline can be attributed to existing supply dynamics in the U.S. Midwest as well as unplanned refinery and transportation outages on the U.S. Gulf Coast because of the hurricane. With refineries in the U.S. Midwest processing a record amount of crude oil as of August 25 and crude oil inventories in Cushing, Oklahoma, rising by 2.2 million barrels from July 28 to September 1, demand for crude oil produced in West Texas to be transported to the U.S. Midwest may be low. Further, with reduced refinery demand from the U.S. Gulf Coast and limited transportation options, producers' ability to move crude oil out of West Texas was constrained, and crude oil prices declined. The BridgeTex and Longhorn pipelines, which transport crude oil from the Permian Basin to the U.S. Gulf Coast, were taken offline in anticipation of the hurricane. Both pipelines are reported to have restarted operations at the beginning of September.

Figure 3: Light crude oil prices minus Urals spot price


Economic growth indicators: STEO estimates global liquid fuels demand to increase by 1.4 million b/d in 2017 and by 1.7 million b/d in 2018. Economic indicators from developed and emerging markets point to continued economic improvement and support growth in liquid fuels demand. The Organization for Economic Cooperation and Development (OECD) provides monthly composite leading indicators (CLI) for the economic activity of every member OECD country and several emerging market economies. Each CLI is composed of many data series unique to each respective country, with an index of 100 representing that country's long-term potential economic output. These indicators are constructed so that peaks and troughs in the series signal a possible change in the country's business cycle six to nine months ahead of time.

As of July, the CLI for OECD Europe and some major emerging market economies indicate that economic activity could either remain higher than each country's respective long-term potential output or could begin to accelerate in the next six to nine months (Figure 4). The CLI for OECD Europe has been rising since June 2016 and is above 100, suggesting that the region may experience economic activity stronger than its long-term potential growth. The CLI for Brazil continues to increase as the country recovers from its recession. Brazil's unemployment rate is beginning to fall, retail spending is increasing, and interest rates are declining. The CLI for China in July was higher than 100 for the first time since late 2014. Although interest rates have been rising and credit growth has slowed, increased activity in both the manufacturing and service sectors of the economy points to economic growth. The CLI for India remains below 100 but rose slightly in June and July. India has experienced some economic disruptions because of demonetization and the implementation of a goods and services tax. However, these effects are expected to subside over time.

Figure 4: OECD composite leading indicators


Price Summary
  2015 2016 2017 2018
a West Texas Intermediate.
WTI Crude Oila
(dollars per barrel)
48.67 43.33 48.83 49.58
Brent Crude Oil
(dollars per barrel)
52.32 43.74 51.07 51.58
Global Petroleum and Other Liquids
  2015 2016 2017 2018
a Weighted by oil consumption.
Supply & Consumption (million barrels per day)
Non-OPEC Production 58.48 57.94 58.80 60.15
OECD Consumption 46.43 46.82 47.23 47.66
Non-OECD Consumption 48.99 50.08 51.03 52.29
Total World Consumption 95.42 96.91 98.26 99.95
Primary Assumptions (percent change from prior year)
World Real Gross Domestic Producta 2.7 2.3 2.8 3.1
Real U.S. Dollar Exchange Rateb 10.7 6.3 2.5 2.3