Release date: October 13, 2016 | Next release date: October 19, 2016
Updated forecast in October STEO implies slower path to global oil market balance
The U.S. Energy Information Administration's (EIA) October Short-Term Energy Outlook (STEO) indicates that oil market conditions are somewhat looser by the end of 2017 than previously projected. Although the annual average spot prices for West Texas Intermediate (WTI) and Brent are similar across the current and previous outlooks, quarterly WTI and Brent spot prices were revised more significantly. EIA's October STEO Brent crude oil price forecast for the fourth quarter of 2016 and the first quarter of 2017 is $48 per barrel (b) about $3/b higher than in the September forecast, reflecting recent price movements and a reduction in near-term downside price risks. However, the forecast for prices toward the end of 2017 has actually been reduced, with prices for 2017 as a whole slightly below the September forecast. The recent activity of U.S. onshore producers, along with expectations of higher U.S. production in 2017, is one of the drivers for lowering EIA's Brent crude oil forecast in the fourth quarter of 2017 to $55/b from a forecast of $58/b in the September STEO.
Compared with the September STEO, this month's outlook reduces annual U.S. crude oil production in 2016, but increases production in 2017. The October STEO forecasts U.S. crude production to be 120,000 barrels per day (b/d) lower in the fourth quarter 2016, compared with the September STEO. However, it expects U.S. crude production to rise faster than last month's forecast, reaching 8.8 million b/d in the fourth quarter of 2017.
In the four oil producing regions (Bakken, Niobrara, Permian, and Eagle Ford) included in EIA's Drilling Productivity Report (DPR), the ratio of drilled but uncompleted wells (DUCs) to completed wells was approximately 2:1 at the end of 2014, but increased to nearly 12:1 in early 2016. While the number of DUCs in the four oil-dominant DPR regions has declined by about 400 between March and August 2016, over 4,100 DUCs remain as of the end of August with the ratio of DUCs to completed wells still almost 10:1. The current inventory of DUCs, which can be brought into production more quickly than wells that must be drilled prior to completion, may increase the responsiveness of U.S. production to crude oil price increases.
Data suggest that the number of active oil rigs may be trending upward, and from June through August of this year, the number of oil rigs in the Bakken, Eagle Ford, Niobrara, and Permian regions increased by 4, 7, 5, and 42, respectively. Productivity from new oil wells is also increasing as production techniques are refined. Reversing a decreasing trend since 2015, crude oil production in the Lower 48 states (which includes the tight oil producing regions) is forecast to increase during 2017 from 6.2 million b/d in the first quarter to 6.4 million b/d in the fourth quarter.
After an unofficial meeting in Algeria on September 28, members of the Organization of the Petroleum Exporting Countries (OPEC) announced a framework agreement that could lead to a cap on OPEC crude oil production of around 32.5 to 33.0 million b/d in 2017. Important details of the agreement, including target outputs for individual countries, still remain to be decided and agreed upon at a regular OPEC meeting in November. Even if such a decision/agreement is actually reached, the extent of compliance with whatever targets are stated remains an important question in light of past experience. Notwithstanding the recent framework agreement, the total OPEC production forecast for 2017 of 33.0 million b/d in the October STEO is almost unchanged from the September forecast.
The October STEO reflects a continuation of rebalancing between global production and consumption that is reflected in a deceleration of the annual growth rate of the global stocks (Figure 1). In 2015, growth in global crude oil stocks was 1.8 million b/d. Growth in crude oil stocks is expected to slow to 0.7 million b/d in 2016 and to slow even further to 0.3 million b/d for 2017, with the first quarterly global stock draw since the end of 2013 expected in the third quarter of 2017.
The decelerating growth in global stocks mainly reflects a forecast in which oil consumption grows faster than oil production, although overall production remains greater than consumption. The October STEO expects global production to increase from 96.0 million b/d in 2016 to 97.0 million b/d in 2017, a slight increase compared with the September STEO, but still less than anticipated consumption growth.
Data changes to the Weekly Petroleum Status Report (WPSR)
Beginning with today's release, EIA will no longer include crude oil lease stocks in commercial inventory data, as previously announced in This Week in Petroleum on September 14. EIA's historical data has been similarly revised to provide users with matching datasets. To help readers prepare for this change, we created a test site that contained CSV and Excel files reflecting the removal of lease stock data from our previously published weekly commercial crude oil inventories as well as a notice of upcoming changes. To see this change, readers can look at Table 9, Tab 6, columns C through I. This data series has been updated with official backcasted data with today's WPSR release.
U.S. average regular gasoline retail and diesel fuel prices increase
The U.S. average regular gasoline retail price rose three cents from the previous week to $2.27 per gallon on October 10, down seven cents from the same time last year. The Midwest price rose five cents to $2.22 per gallon, the Gulf Coast price increased three cents to $2.04 per gallon, and the East Coast price rose two cents to $2.23 per gallon. West Coast and Rocky Mountain prices were flat at $2.68 per gallon and $2.24 per gallon, respectively.
The U.S. average diesel fuel price rose six cents from a week ago to $2.45 per gallon, down 11 cents from the same time last year. The Gulf Coast price rose by seven cents to $2.32 per gallon, while the Midwest price was up six cents to $2.42 per gallon. The West Coast price rose five cents to $2.71 per gallon, while the Rocky Mountain and East Coast prices each increased by four cents to $2.51 per gallon and $2.44 per gallon, respectively.
Propane inventories fall
U.S. propane stocks decreased by 0.1 million barrels last week to 103.9 million barrels as of October 7, 2016, 1.8 million barrels (1.7%) higher than a year ago. Midwest and East Coast inventories decreased by 0.5 and 0.1 million barrels, respectively, while Gulf Coast and Rocky Mountain/West Coast inventories increased by 0.4 and 0.2 million barrels, respectively. Propylene non-fuel-use inventories represented 2.7% of total propane inventories.
Residential heating fuel prices increase
As of October 10, 2016, residential heating oil prices averaged $2.36 per gallon, up six cents per gallon over last week but down nearly eight cents from the same time last year. The average wholesale heating oil price is $1.64 per gallon, almost four cents per gallon more than last week but five cents per gallon below last year's price.
Residential propane prices averaged just under $2.03 per gallon as of October 10, four cents per gallon more than last week and 13 cents more than one year ago. Wholesale propane prices averaged nearly 67 cents per gallon, four cents per gallon higher than last week's price and eight cents per gallon above the price a year ago.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 10/10/16 | Week | Year | |
| Gasoline | 2.272 | 0.027 | -0.065 |
| Diesel | 2.445 | 0.056 | -0.111 |
| Heating Oil | 2.364 | 0.063 | -0.076 |
| Propane | 2.027 | 0.043 | 0.133 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 10/07/16 | Week | Year | |
| Crude oil | 49.81 | 1.57 | 0.18 |
| Gasoline | 1.482 | -0.005 | 0.065 |
| Heating oil | 1.579 | 0.051 | -0.012 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 10/07/16 | Week | Year | |
| Crude oil | 474.0 | 4.9 | 37.4 |
| Gasoline | 225.5 | -1.9 | 4.2 |
| Distillate | 157.0 | -3.7 | 9.3 |
| Propane | 103.928 | -0.072 | 1.764 |