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Short-Term Energy Outlook

Release Date: July 10, 2018  |  Next Release Date: August 7, 2018  |  Full Report    |   Text Only   |   All Tables   |   All Figures


Crude Oil Prices. The monthly average spot price of Brent crude oil decreased by $3/b in June to $74/b. Despite the decline, June marked the third consecutive month in which Brent crude oil spot prices averaged more than $70/b. The price decline in June largely reflected market expectations in the early part of the month that OPEC, along with certain non-OPEC producers including Russia, would announce a production increase at the June 22–23 meetings.

Although OPEC/non-OPEC producers did announce plans to increase production starting on July 1, Brent crude oil prices increased after the announcement. The price increases possibly reflected expectations by market participants that announced production increases would not be enough to offset falling production levels in Venezuela and Libya, along with the potential for reduced volumes from Iran following the U.S. withdrawal from the JCPOA.

Brent crude oil spot prices have risen from an average of $50/b in the second quarter of 2017 to an average of $75/b in the second quarter of 2018. The rising prices largely reflect continuing draws in global oil inventory levels. EIA estimates that global petroleum and other liquid fuel inventories fell by an average of 0.5 million b/d in 2017 and by 0.2 million b/d in the first half of 2018. EIA expects strong growth in U.S. and other non-OPEC liquid fuels production will contribute to global oil inventories rising by 0.1 million b/d in the second half of 2018 and by 0.6 million b/d in 2019. EIA forecasts the inventory builds in the second half of 2018 through 2019 will contribute to Brent crude oil prices declining from current levels to an average of $72/b in the fourth quarter of 2018. Prices are then expected to fall further to an average of $69/b in 2019.

The forecast for Brent crude oil spot prices for the second half of 2018 and all of 2019 is $1/b higher than in last month’s STEO. Although forecast global oil inventories builds in 2019 are expected to be higher than the forecast in the June STEO, these builds will help build OECD oil inventories that have fallen below five-year average levels on a days-of-supply basis. For much of the second half of 2018 and 2019, total OECD inventories are forecast to be lower than the five-year average on a days-of-supply basis, and OPEC spare crude oil production capacity is expected to be low compared with historical levels. This combination of relatively low inventory and spare capacity levels elevates the risk of upward price movements in the event of a supply disruption.

Daily and monthly average crude oil prices could vary significantly from annual average forecasts because global economic developments and geopolitical events in the coming months have the potential to push oil prices higher or lower than the current STEO price forecast. Uncertainty remains regarding the effect of U.S. sanctions on Iran and the degree to which sanctions will take oil off the market. Additionally, the path of Venezuela’s production declines and Libya’s ability to bring back disrupted volumes is highly uncertain, as is the exact degree of the production response from other OPEC members and Russia. Developments regarding these and other variables, particularly the rate of economic growth and its effect on global oil demand growth, could influence prices in either direction. Also, the U.S. tight oil sector continues to be dynamic, and quickly evolving trends in this sector could affect both current crude oil prices and expectations for future prices.

Despite averaging nearly $7/b during June, the discount of West Texas Intermediate (WTI) crude oil prices to Brent fell to an average of $1/b during the final week of the month. The narrowing price spread was driven primarily by a crude oil production outage at a major Canadian oil sands facility, limiting crude oil volumes that could be sent to the Cushing, Oklahoma storage hub for delivery in the short term, putting upward pressure on WTI prices.

Average WTI crude oil prices are forecast to be $6/b lower than Brent prices in 2018 and $7/b lower than Brent prices in 2019. The price discount of WTI to Brent in the forecast is based on the assumption that increasing crude oil production in the Permian basin and current constraints on the capacity to transport crude oil from production areas in West Texas and from Cushing to refineries and export terminals along the U.S. Gulf Coast will persist until mid-2019. At that point, new takeaway capacity is expected to come online from West Texas to the Gulf Coast that will reduce current distribution bottlenecks throughout Texas and Oklahoma.

The current values of futures and options contracts suggest significant uncertainty in the oil price outlook. WTI futures contracts for October 2018 delivery that were traded during the five-day period ending July 5 averaged $70/b, and implied volatility averaged 25%. These levels established the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in October 2018 at $56/b and $87/b, respectively. The 95% confidence interval for market expectations widens slightly over time, with lower and upper limits of $50/b and $92/b, respectively, for prices in December 2018.

West Texas Intermediate (WTI) crude oil price

Product Prices. EIA expects the retail price of regular gasoline to average $2.85 per gallon (gal) during the 2018 summer driving season (April through September), 44 cents/gal higher than last summer. EIA expects the retail price of regular gasoline to average $2.85/gal during the third quarter of 2018, 42 cents/gal higher than at the same time last year, primarily reflecting higher crude oil prices. EIA expects the U.S. monthly average retail price of regular gasoline will fall from a 2018 monthly peak of $2.90/gal in May to $2.83/gal in September before falling further to $2.70/gal in December. The U.S. regular gasoline retail price averaged $2.42/gal in 2017 and is forecast to average $2.76/gal in 2018 and $2.77/gal in 2019.

Regional annual average forecast prices for 2018 range from a low of $2.50/gal in the Gulf Coast—Petroleum Administration for Defense District (PADD) 3—to a high of $3.27/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 38 cents/gal in June. This level was lower than the 47 cents/gal average in June 2017 and the five-year (2013–17) average for June (48 cents/gal). Refinery wholesale gasoline margins averaged 40 cents/gal in 2017, which was relatively unchanged from the 2016 level but 7 cents/gal higher than the five-year average. Refinery wholesale gasoline margins are expected to average 31 cents/gal in 2018 and 35 cents/gal in 2019.

The diesel fuel retail price averaged $2.65/gal in 2017, which was 34 cents/gal higher than the average in 2016. The diesel price is forecast to average $3.14/gal in 2018 and $3.07/gal in 2019, driven higher primarily by higher crude oil prices and growing global diesel demand. Rising diesel consumption is expected to contribute to gradually increasing diesel refinery margins. Diesel refinery margins based on Brent crude oil are expected to average 44 cents/gal in 2018 and 49 cents/gal in 2019, compared with an average of 40 cents/gal in 2017.

U.S. gasoline and crude oil prices

U.S. diesel fuel and crude oil prices

Natural Gas Prices. Despite inventories falling 0.5 Tcf below the five-year average at the end of April, monthly average Henry Hub natural gas prices have remained below $3 per million British thermal units (MMBtu) since January. EIA expects that higher natural gas production during the injection season will offset current and forecast low storage levels and will moderate significant upward price pressures in 2018. The Henry Hub natural gas spot price averaged $2.97/MMBtu in June, 16 cents/MMBtu higher than in May.

Natural gas futures contracts for October 2018 delivery that were traded during the five-day period ending July 5, 2018, averaged $2.87/MMBtu. Current options and futures prices indicate that market participants place the lower and upper bounds for the 95% confidence interval for October 2018 contracts at $2.37/MMBtu and $3.49/MMBtu, respectively.

Henry Hub natural gas price

U.S. natural gas prices

Coal Prices. EIA estimates the delivered coal price to U.S. electricity generators averaged $2.08 per million British thermal units (MMBtu) in 2017, which was 4 cents/MMBtu lower than the 2016 price. EIA forecasts that coal prices will be $2.10/MMBtu in 2018 and $2.09/MMBtu in 2019.

Electricity Retail Prices. The forecast U.S. retail electricity price for the residential sector averages 13 cents/kilowatthour in 2018, which is 0.5% higher than the average retail price last year. Forecast residential prices increase by an additional 2.7% in 2019. EIA expects commercial sector electricity prices to increase by 1.1% in 2018 and by 0.6% in 2019, while forecast industrial prices increase by 1.6% and 0.9% over the next two years, respectively.

U.S. residential electricity price

aWest Texas Intermediate.
bAverage regular pump price.
cOn-highway retail.
dU.S. Residential average.
eElectric power generation fuel cost.
WTI Crude Oila
(dollars per barrel)
Brent Crude Oil
(dollars per barrel)
(dollars testper gallon)
(dollars per gallon)
Heating Oild
(dollars per gallon)
Natural Gasd
(dollars per thousand cubic feet)
(cents per kilowatthour)
(dollars per million Btu)

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Related Tables
Table SF01. U.S. Motor Gasoline Summer Outlook PDF
Table SF02. Average Summer Residential Electricity Usage, Prices and Expenditures PDF
Table 1. U.S. Energy Markets Summary PDF
Table 2. Energy Prices PDF
Table 4c. U.S. Regional Motor Gasoline Prices and Inventories PDF
Table 5b. U.S. Regional Natural Gas Prices PDF
Table 7c. U.S. Regional Retail Electricity Prices PDF
Related Figures
West Texas Intermediate (WTI) crude oil price XLSX PNG
U.S. gasoline and crude oil prices XLSX PNG
U.S. diesel fuel and crude oil prices XLSX PNG
Henry Hub natural gas price XLSX PNG
U.S. natural gas prices XLSX PNG
U.S. residential electricity price XLSX PNG
U.S. census regions and census divisions XLSX PNG
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