US EIA’s short-term energy outlook

Highlights

January was the seventh consecutive month in which monthly average North Sea Brent crude oil prices decreased, reaching US$48/barrel (bbl), the lowest since March 2009. The price decline reflects continued growth in U.S. tight oil production and strong global supply, amid weaker global oil demand growth, which contributed to rising global oil inventories. In January, estimated Organisation for Economic Cooperation and Development (OECD) total commercial oil inventories reached their highest level since August 2010.

EIA forecasts that Brent crude oil prices will average US$58/bbl in 2015 and US$75/bbl in 2016, with 2015 and 2016 annual average West Texas Intermediate (WTI) prices expected to be US$3/bbl and US$4/bbl, respectively, below Brent. This price outlook is unchanged from last month’s forecast. The current values of futures and options contracts continue to suggest very high uncertainty in the price outlook. WTI futures contracts for May 2015 delivery, traded during the five-day period ending 5 February, averaged US$52/bbl while implied volatility averaged 52%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in May 2015 at US$33/bbl and US$81/bbl, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of US$32/bbl and US$108/bbl for prices in December 2015.

Total U.S. crude oil production averaged an estimated 9.2 million bbl/d in January. Forecast total crude oil production averages 9.3 million bbl/d in 2015. Given EIA’s price forecast, projected crude oil production averages 9.5 million bbl/d in 2016, close to the highest annual average level of production in U.S. history of 9.6 million bbl/d in 1970.

Driven largely by falling crude oil prices, U.S. weekly regular gasoline retail prices averaged US$2.04/gallon on 26 January, the lowest since 6 April 2009, before increasing slightly to US$2.07/gal on February 2. EIA expects U.S. regular gasoline retail prices, which averaged US$3.36/gal in 2014, to average US$2.33/gal in 2015. The average household is now expected to spend about US$750 less for gasoline in 2015 compared with last year because of lower prices. The projected regular gasoline retail price increases to an average of US$2.73/gal in 2016.

Natural gas working inventories on 30 January totalled 2428 Bcf, 468 Bcf (24%) above the level at the same time in 2014 and 29 Bcf (1%) below the previous five-year (2010-14) average. EIA expects the Henry Hub natural gas spot price to average US$3.34/million British thermal units (MMBtu) this winter (2014-15) compared with US$4.53/MMBtu last winter (2013-14), reflecting both lower-than-expected space heating demand and higher natural gas production this winter. EIA expects the Henry Hub natural gas spot price, which averaged US$4.39/MMBtu in 2014, to average US$3.05/MMBtu in 2015 and US$3.47/MMBtu in 2016, US$0.39/MMBtu lower for both years than in last month’s STEO.

Adapted from press release by Joe Green

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