This Week In Petroleum – EIA.gov – Feb. 10, 2016

U.S. regular retail gasoline to average below $2 per gallon in 2016; lowest since 2004

The Short-Term Energy Outlook (STEO) released on February 9 forecasts that the U.S. retail regular gasoline price will average $1.98/gallon (gal) in 2016, which would be the lowest annual average since 2004, and $2.21/gal in 2017 (Figure 1). Lower crude oil prices contributed to U.S. regular gasoline retail prices declining to an average of $1.95/gal in January, down from an average of $2.04/gal in December. EIA projects regular gasoline retail prices to fall to $1.82/gal in February 2016 and average $1.88/gal in the first quarter of 2016, before rising during the spring. The diesel fuel retail price, which averaged $2.71/gal in 2015, is projected to average $2.22/gal in 2016, 7 cents/gal lower than projected in last month’s STEO, and $2.58/gal in 2017.

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The lower outlook for petroleum product prices is based on lower expectations for crude oil prices. North Sea Brent crude oil prices are expected to average $38 per barrel (b) in 2016 and $50/b in 2017. Forecast West Texas Intermediate (WTI) crude oil prices are expected to average the same as Brent in both years. However, the current values of futures and options contracts continue to suggest high uncertainty in the price outlook (Figure 2). For example, EIA’s forecast for the average WTI price in May 2016 of $36/b should be considered in the context of recent Nymex contract values for May 2016 delivery (Market Prices and Uncertainty Report) suggesting that the market expects WTI prices to range from $21/b to $58/b (at the 95% confidence interval).

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The confidence range for crude oil prices as shown in Figure 2 is derived using a variation of the Black-Scholes model that is often used by financial analysts to estimate the price of options. EIA starts with options prices for WTI crude oil, and uses the Black-Scholes model to calculate the implied volatility. WTI futures contracts and options are the among the more actively traded commodity derivative products, with many producers, consumers (including refiners, airlines, trucking companies, and fuel distributors), and other investors and risk-takers involved. The confidence interval is therefore a market-derived range that is not directly dependent on EIA’s supply and demand estimates.

Continuing increases in global liquids inventories have put significant downward pressure on oil prices since mid-2014. After growing by an estimated 1.8 million barrels per day (b/d) in 2015, global oil inventories are forecast to grow by 1.4 million b/d in the first quarter of 2016. The largest inventory builds occur in the first half of 2016, helping keep Brent prices below $40/b through August.

During January 2016, daily changes in crude oil prices were highly correlated with daily changes in global equity indexes. The increased co-movement and higher volatility likely reflect increased uncertainty about future global economic growth. Changes in overall demand for risk assets, such as commodities and equities, by investors and market participants may also be playing a larger role in price discovery across global asset markets compared with previous months.

EIA estimates that petroleum and other liquid fuels production in countries outside of the Organization of the Petroleum Exporting Countries (OPEC) grew by 1.4 million b/d in 2015. The 2015 growth occurred mainly in North America. EIA expects non-OPEC production to decline by 0.6 million b/d in 2016, which would be the first decline since 2008. Most of the forecast decline in 2016 is expected to be in the United States. Non-OPEC production is forecast to decrease by 0.2 million b/d in 2017.

Changes in non-OPEC production are driven by changes in U.S. tight oil production, which is characterized by high decline rates and relatively short investment horizons, making it among the more price-sensitive globally. Forecast total U.S. liquid fuels production declines by 0.5 million b/d in 2016 and remains relatively flat in 2017.

Forecast OPEC crude oil production increases by 0.7 million b/d in 2016 and by 0.6 million b/d in 2017 with Iran accounting for most of the increase in 2017. EIA assumes that a collaborative production cut among OPEC members and other major producers does not occur in the forecast period, as major OPEC producers continue their stated strategy to maintain market share.

EIA expects global consumption of petroleum and other liquid fuels to grow by 1.2 million b/d in 2016 and by 1.5 million b/d in 2017. Forecast real gross domestic product (GDP) for the world weighted by oil consumption rises by 2.6% in 2016 and by 3.1% in 2017.

U.S. average regular gasoline and diesel fuel retail prices decrease

The U.S. average regular gasoline retail price decreased six cents from the previous week to $1.76 per gallon on February 8, down 43 cents from the same time last year. The Midwest price fell 10 cents to $1.52 per gallon. The West Coast price fell six cents to $2.31 per gallon. The Rocky Mountain price decreased five cents to $1.75 per gallon, followed by the East Coast price, which was down four cents to $1.79 per gallon. The Gulf Coast price decreased three cents to $1.56 per gallon.

The U.S. average diesel fuel price decreased two cents from the prior week to $2.01 per gallon, down 83 cents from the same time last year. The Rocky Mountain price decreased six cents per gallon to $1.91 per gallon. The West Coast price fell four cents to $2.24 per gallon. The East Coast and Gulf Coast prices each fell two cents to $2.09 per gallon and $1.90 per gallon, respectively. The Midwest price decreased one cent to $1.93 per gallon.

Propane inventories fall

U.S. propane stocks decreased by 3.3 million barrels last week to 74.8 million barrels as of February 5, 2016, 9.8 million barrels (15.2%) higher than a year ago. Gulf Coast, Midwest, and East Coast inventories dropped by 2.1 million barrels, 0.9 million barrels, and 0.3 million barrels, respectively. Rocky Mountain/West Coast inventories remained essentially unchanged, declining by only 0.01 million barrels. Propylene non-fuel-use inventories represented 4.2% of total propane inventories.

Residential heating fuel prices increase

As of February 8, 2016, residential heating oil prices averaged $2.09 per gallon, 1 cent per gallon higher than last week and 82 cents per gallon lower than last year’s price for the same week. The wholesale heating oil price this week averaged $1.13 per gallon, 2 cents per gallon less than last week and 85 cents per gallon lower than a year ago.

Residential propane prices averaged $2.03 per gallon, 1 cent per gallon higher than last week’s price and 33 cents per gallon lower than one year ago. Wholesale propane prices averaged 47 cents per gallon, 1 cent per gallon higher than last week and 20 cents per gallon lower than last year.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at EIA.gov

This Week In Petroleum – EIA.gov – Feb. 3, 2016

East Coast, Gulf Coast trade transportation fuels to balance needs, supply

With just over half of total U.S. refining capacity, the Gulf Coast (Petroleum Administration for Defense District, or PADD, 3) is the largest domestic supplier of transportation fuels. Regional consumption is less than one-third of in-region production. The East Coast (PADD 1) is the largest transportation fuels consuming region in the country. However, that region’s limited refinery capacity produces transportation fuels to meet just one-fifth of regional consumption. Pipeline infrastructure linking the two PADDs and international trade play key roles in balancing the mismatch between the supply and use of transportation fuels within each region (Figure 1).

On February 3, the U.S. Energy Information Administration (EIA) released aPADD 1 and 3 Transportation Fuels Markets study, which examines transportation fuels (motor gasoline, distillate fuel, and jet fuel) supply, consumption, and distribution at both the PADD level and for specific areas within the PADDs.

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The East Coast region includes states from Maine to Florida along the U.S. Atlantic Coast. The Gulf Coast region comprises states between New Mexico in the west to Alabama in the east, primarily along the Gulf of Mexico. For this study, transportation fuels include gasoline, distillate fuel (including diesel), and jet fuel. Residual fuel oil supply is also analyzed where applicable.

The study considers the East Coast as four distinct regions: New England (PADD 1A), Central Atlantic (PADD 1B), the Southeast, and Florida. The Gulf Coast is divided into five regions: New Mexico, Texas Inland, Texas Gulf Coast, Louisiana Gulf Coast, and North Louisiana-Arkansas (Figure 2).

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The study examines transportation fuels supply, consumption, and distribution patterns within the specific sub-PADD regions. The study evaluates the supply, storage, and distribution of transportation fuels from in-region refineries and other domestic sources of supply as well as imports. The study characterizes the infrastructure associated with the distribution of transportation fuels including infrastructure associated with refineries, bulk terminals, pipelines, marine movements, as well as transportation fuel distribution patterns. The study also considers regional supply/demand balances and includes a discussion of the wholesale and retail market structure for each region.

This study is the second in a series by EIA to inform its analyses of petroleum product markets, especially during periods of supply disruptions and market change. A previously published study analyzed PADD 5 (West Coast) transportation fuels markets. Planned studies will analyze PADD 5 crude supply and the transportation fuels markets in the Midwest (PADD 2) and Rocky Mountains (PADD 4).

U.S. average retail regular gasoline and diesel fuel prices decrease

The U.S. average retail price for regular gasoline decreased three cents from the previous week to $1.82 per gallon on February 1, 2016, down 25 cents from the same time last year. The West Coast price decreased eight cents to $2.38 per gallon, followed by the Rocky Mountain price, which decreased six cents to $1.80 per gallon. The Gulf Coast price was down four cents to $1.59 per gallon. The East Coast price decreased three cents to $1.84 per gallon, and the Midwest price was down one cent to $1.62 per gallon.

The U.S. average diesel fuel price decreased four cents from last week to $2.03 per gallon, down 80 cents per gallon from the same time last year. The West Coast, Rocky Mountain, and Midwest prices each fell five cents to $2.27 per gallon, $1.97 per gallon, and $1.94 per gallon, respectively. The Gulf Coast price was down four cents to $1.92 per gallon. The East Coast price decreased three cents to $2.11 per gallon.

Propane inventories fall

U.S. propane stocks decreased by 5.6 million barrels last week to 78.1 million barrels as of January 29, 2016, 10.8 million barrels (16.1%) higher than a year ago. Gulf Coast inventories decreased by 3.1 million barrels, Midwest inventories fell by 1.3 million barrels, and East Coast and Rocky Mountain/West Coast inventories each declined by 0.6 million barrels. Propylene non-fuel-use inventories represented 4.1% of total propane inventories.

Residential heating fuel prices increase

As of February 1, 2016, residential heating oil prices averaged $2.08 per gallon, nearly 2 cents per gallon higher than last week and almost 72 cents lower than last year’s price for the same week. The wholesale heating oil price this week averaged $1.14 per gallon, almost 8 cents higher than last week and nearly 69 cents per gallon lower than a year ago.

Residential propane prices averaged $2.02 per gallon, less than a penny per gallon higher than last week’s price and almost 35 cents lower than one year ago. Wholesale propane prices averaged 46 cents per gallon, just over 2 cents per gallon higher than last week and almost 15 cents per gallon lower than last year.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at EIA.gov