‹ Analysis & Projections

Short-Term Energy and SUmmer Fuels Outlook

Release Date: April 11, 2017  |  Next Release Date: May 9, 2017  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Petroleum Products

Gasoline prices: The front-month futures price of reformulated blendstock for oxygenate blending (RBOB, the petroleum component of gasoline used in many parts of the country) rose by 5 cents per gallon (gal) since March 1, settling at $1.73/gal on April 6 (Figure 5). The RBOB-Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) rose by 9 cents/gal over the same period.

Figure 5: Brent crude oil vs U.S. and Chinese equity indices

Weekly gasoline inventories in the United States, the trading hub of Amsterdam-Rotterdam-Antwerp in Northwest Europe, and Singapore have been below last year's levels for seven consecutive weeks, the longest streak across all three regions since September 2011. The size of gasoline inventory withdrawals across these different regions suggests there could be strength in global gasoline consumption. Although EIA estimates that gasoline consumption in the United States was down year-over-year in the first quarter of 2017, EIA estimates that it increased by 0.1 million barrels per day (b/d) from February to March, similar to the five-year average growth in consumption from February to March.

The RBOB-Brent crack spread typically increases from February to March, as the more expensive April RBOB contract for delivery of summer grade gasoline begins trading in March. Although the RBOB-Brent crack spread increased from February to March this year, the increase was the lowest since 2011, increasing by only 17 cents/gal (Figure 6). Despite some evidence of gasoline market strength reflected in global inventory draws, the moderate crack spread increase could be related to market expectations for gasoline consumption during the summer after consumption declined year-over-year in the first quarter of 2017 for the first time since 2012. The lower crack spread increase this year could also be related to general price volatility that occurs with the transition from winter grade to summer grade gasoline, depending on the composition and management of inventories.

Figure 6: Crude oil implied volatility

Ultra-low sulfur diesel prices: The ultra-low sulfur diesel (ULSD) futures price decreased 1 cent/gal since March 1, settling at $1.61/gal on April 6. The ULSD-Brent crack spread increased 2 cents/gal, settling at 31 cents/gal (Figure 7).

U.S. distillate consumption plus exports reached an all-time high for the month of March. Continued strength in domestic and global distillate consumption is contributing to a decline in U.S. distillate inventories. According to EIA's latest Weekly Petroleum Status Report, stocks on a days-of-supply basis were 36 days as of March 31, the lowest level since November 2015. An increase in economic activity could be supporting the distillate market. The Richmond and Kansas City Federal Reserve regional manufacturing surveys in March reached their highest levels since April 2010 and March 2011, respectively. In Europe, the manufacturing Purchasing Managers' Index increased for the seventh consecutive month, with other regions also suggesting higher manufacturing growth. Continued expansion in manufacturing activity is expected to support increased distillate consumption.

Figure 7: Probability of the December 2013 WTI contract expiring 
above price levels

U.S. Petroleum and Other Liquids
  2015 2016 2017 2018
Crude Oil prices (dollars per barrel)
WTI Spot Average 48.67 43.33 52.24 55.10
Brent Spot Average 52.32 43.74 54.23 57.10
Imported Average 46.34 38.69 48.55 51.59
Refiner Average Acquisition Cost 48.40 40.69 51.03 54.12
Retail prices including taxes (dollars per gallon)
Regular Gasoline 2.43 2.15 2.39 2.44
Diesel Fuel 2.71 2.31 2.69 2.85
Heating Oil 2.65 2.10 2.59 2.75
Production (million barrels per day)
Crude Oil 9.42 8.87 9.22 9.90
Natural Gas Plant Liquids 3.34 3.48 3.75 4.17
Fuel Ethanol 0.97 1.00 1.02 1.02
Biodiesel 0.082 0.101 0.103 0.111
Consumption (million barrels per day)
Motor Gasoline 9.18 9.33 9.30 9.34
Distillate Fuel Oil 4.00 3.88 3.95 4.07
Jet Fuel 1.55 1.61 1.62 1.62
Total Consumption 19.53 19.63 19.88 20.22
Primary Assumptions (percent change from previous year)
U.S. Real GDP Growth 2.6 1.6 2.3 2.5
Heating Degree Days -10.2 -5.2 1.4 7.8
Distillate-weighted Industrial Production 1.0 0.8 2.7 2.7

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