Release date: June 7, 2017 | Next release date: June 14, 2017
Markets expected to tighten in the third quarter of 2017, then loosen through 2018
World production of crude and liquids has been revised slightly downward from EIA’s May Short-Term Energy Outlook (STEO) for both 2017 and 2018. The Organization of the Petroleum Exporting Countries (OPEC) met on May 25, 2017, and announced an extension to production cuts that were originally set to end this month. The agreed-upon OPEC crude oil production target remains at 32.5 million barrels per day (b/d) through the end of the first quarter of 2018. EIA now forecasts OPEC members’ crude oil production to average 32.3 million b/d in 2017 and 32.8 million b/d in 2018, about 0.2 million b/d and 0.4 million b/d, respectively, lower than previously forecast. However, continuing production growth in many non-OPEC countries is expected to moderate the pace of global liquid fuels inventory draws in 2017 and lead to a small inventory build in 2018.
EIA now forecasts OPEC crude oil and other liquids production to average 39.6 million b/d from the third quarter of 2017 through the first quarter of 2018 (340,000 b/d lower than previously forecast). Non-OPEC production averages 59.6 million b/d over this period, up from 58.3 million b/d over the same period a year earlier. Considering both OPEC and non-OPEC production forecasts and the outlook for demand growth, EIA now expects an average global inventory draw of 100,000 b/d through the first quarter of 2018. The largest draws are expected in the third quarter of 2017, when global crude oil and other liquids inventories are forecast to fall by an average of 430,000 b/d (Figure 1).
Inventory draws of this magnitude suggest the possibility of some upward pressure on crude oil prices over the coming months. The third quarter 2017 Brent spot price forecast is $54/b in EIA’s June STEO, up from $52/b in the May STEO. However, because U.S. tight oil production is relatively responsive to changes in oil prices, and given an estimated six-month lag between a change in oil prices and realized production, higher crude oil prices in mid-2017 have the potential to raise U.S. supply in 2018.
The largest global inventory increase in the forecast occurs in the second quarter of 2018, when Brazilian and OPEC production are expected to realize quarterly increases of 570,000 b/d and 220,000 b/d, respectively. The expectation of supply growth in 2018 could contribute to oil price weakness in late 2017 and early 2018; the June STEO’s Brent spot price forecast for the first quarter of 2018 is $52/b, $3/b lower than in the previous forecast. The current forecast assumes OPEC cuts will be extended beyond March 2018, but that non-compliance, which begins to grow late in 2017, increases somewhat in the second half of 2018. Although this forecast reflects the assumption of only partial OPEC compliance with a second production-cut extension in 2018, any extension provides some support for crude oil prices, even if only temporarily, and partially offsets downward price pressure from growing inventories.
The June STEO forecasts a 2017 average spot price for Brent crude oil of $53/b, unchanged from the previous STEO, along with a $56/b price forecast for 2018, $1/b lower than expected last month. WTI prices are forecast to average $2/b less than Brent in both 2017 and 2018 (Figure 2). As always, all oil price forecasts are subject to considerable uncertainty. For example, NYMEX contract values for September 2017 delivery that traded during the five-day period ending June 1 suggest that a range of $39/b to $64/b encompasses the market expectation for WTI prices in September 2017 at the 95% confidence level; also, as shown in the figure, the range encompassing current market expectations at this confidence level widens for longer time horizons.
U.S. crude oil production increases through the forecast, averaging 9.3 million b/d in 2017 and 10.0 million b/d in 2018. The 2018 forecast exceeds the previous record production level of 9.6 million b/d set in 1970. Growth in U.S. production of crude oil and hydrocarbon gas liquids has been the largest contributor to the 820,000 b/d of non-OPEC liquids supply growth from January through May 2017. Continued increases in drilling activity in U.S. shale basins, particularly in Texas, support production increases throughout the forecast. The largest expansion for U.S. production occurs in the fourth quarter of 2017, which averages a quarter-over-quarter rise of 330,000 b/d.
U.S. average regular gasoline price increases, diesel retail price drops
The U.S. average regular gasoline retail price rose slightly from the previous week, remaining virtually unchanged at $2.41 per gallon on May 29, up three cents from the same time last year. The Midwest and Gulf Coast prices each rose two cents to $2.32 per gallon and $2.17 per gallon, respectively, while the Rocky Mountain and East Coast prices each increased one cent to $2.43 per gallon per gallon and $2.35 per gallon, respectively. The West Coast price dropped two cents to $2.94 per gallon.
The U.S. average diesel fuel price fell one cent to $2.56 per gallon on May 29, 16 cents higher than a year ago. The West Coast, East Coast, Midwest, and Gulf Coast prices each dropped one cent to $2.84 per gallon, $2.60 per gallon, $2.51 per gallon, and $2.42 per gallon, respectively, while the Rocky Mountain price increased less than a penny, remaining at $2.66 per gallon.
Propane inventories gain
U.S. propane stocks increased by 3.3 million barrels last week to 50.4 million barrels as of June 2, 2017, 26.9 million barrels (34.8%) lower than a year ago. Gulf Coast, Midwest, Rocky Mountain/West Coast, and East Coast inventories increased by 2.3 million barrels, 0.5 million barrels, 0.3 million barrels, and 0.1 million barrels, respectively. Propylene non-fuel-use inventories represented 5.5% of total propane inventories.
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Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 06/05/17 | Week | Year | |
| Gasoline | 2.414 | 0.008 | 0.033 |
| Diesel | 2.564 | -0.007 | 0.157 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 06/02/17 | Week | Year | |
| Crude oil | 47.66 | -2.14 | -0.96 |
| Gasoline | 1.577 | -0.066 | -0.031 |
| Heating oil | 1.485 | -0.078 | -0.003 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 06/02/17 | Week | Year | |
| Crude oil | 513.2 | 3.3 | 11.4 |
| Gasoline | 240.3 | 3.3 | 0.7 |
| Distillate | 151.1 | 4.4 | -0.3 |
| Propane | 50.425 | 3.293 | -26.869 |