SHORT-TERM ENERGY OUTLOOK: Prices

http://www.eia.gov/forecasts/steo/report/prices.cfm

SHORT-TERM ENERGY OUTLOOK
Release Date: December 10, 2013 | Next Release Date: January 7, 2014 | Full Report | Text Only | All Tables | All Figures

Prices

Global Crude Oil Prices

Brent crude oil spot prices fell from a monthly average of $112 per barrel in September 2013 to $108 per barrel in November. EIA expects the Brent crude oil price to continue to weaken as non-OPEC supply growth exceeds growth in world consumption. The Brent crude oil price is projected to average $108 per barrel in December 2013 and $104 per barrel in 2014.

The forecast WTI crude oil spot price, which averaged $106 per barrel during September, fell to an average of $94 per barrel in November. EIA expects that WTI crude oil prices will average $96 per barrel during the fourth quarter of 2013 and $95 per barrel during 2014. The discount of WTI crude oil to Brent crude oil, which averaged $18 per barrel in 2012 and then fell to below $4 per barrel in July 2013, averaged $14 per barrel during November. EIA expects the WTI discount to average $12 per barrel during the fourth quarter of 2013 and $9 per barrel during 2014, as new pipeline capacity is added from Cushing to the Gulf Coast.

In addition to an increase in the WTI discount to Brent, U.S. Gulf Coast crude oil grades reached record discounts to international benchmarks in November. Prior to this autumn, discounted crude oil prices had generally been limited to the U.S. Midcontinent, where crude oil production growth had outpaced the capacity of pipeline infrastructure to bring that production to refining centers on the U.S. Gulf Coast. However, pipeline capacity expansions and pipeline reversals have alleviated transportation bottlenecks from the Midcontinent to the Gulf Coast for the time being, causing greater convergence of LLS and WTI prices. This additional infrastructure, continued growth in U.S. light crude oil production, and a seasonal decline in crude oil runs at U.S. Gulf Coast refineries resulted in increases in the net availability of domestic crude oil in the U.S. Gulf Coast. This situation is applying downward pressure to crude oil prices in the U.S. Gulf Coast market, which requires increasingly fewer crude oil imports to balance. The spot discount of LLS, a key Gulf Coast light sweet crude oil grade, to Brent increased from an average of $3 per barrel in September to almost $11 per barrel in November. Likewise, the discount of the Mars spot price, a medium Gulf Coast crude oil grade, to international marker Dubai increased from an average of $4 per barrel in September to $13 per barrel in November.

Energy price forecasts are highly uncertain, and the current values of futures and options contracts suggest that prices could differ significantly from the forecast levels (Market Prices and Uncertainty Report). WTI futures contracts for March 2014 delivery traded during the five-day period ending December 5, 2013, averaged $96 per barrel. Implied volatility averaged 19%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in March 2014 at $82 per barrel and $112 per barrel, respectively. Last year at this time, WTI for March 2013 delivery averaged $89 per barrel and implied volatility averaged 28%. The corresponding lower and upper limits of the 95% confidence interval were $71 per barrel and $113 per barrel.

U.S. Petroleum Product Prices

EIA expects that regular-grade gasoline retail prices, which averaged $3.24 per gallon during November, will average $3.23 per gallon in December 2013. Led by falling Brent crude oil prices, the projected U.S. annual average regular gasoline retail price falls from $3.63 per gallon in 2012 to an average of $3.50 per gallon in 2013 and $3.43 per gallon in 2014. Diesel fuel prices, which averaged $3.97 per gallon in 2012, are projected to average $3.92 per gallon in 2013 and $3.77 per gallon in 2014.

U.S. Natural Gas Prices

Natural gas spot prices averaged $3.64/MMBtu at the Henry Hub in November, down 4 cents from the previous month's price. Despite an overall month-over-month decline, prices in the final days of November rose above $3.80/MMBtu in response to colder weather. EIA expects the Henry Hub price will average $3.69/MMBtu for the year, compared with $2.75/MMBtu in 2012. Henry Hub prices are expected to rise to an annual average of $3.78/MMBtu in 2014.

Natural gas futures prices for March 2014 delivery (for the five-day period ending December 5, 2013) averaged $3.98 per MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for March 2014 contracts at $3.01 per MMBtu and $5.26 per MMBtu, respectively. At this time a year ago, the natural gas futures contract for March 2013 averaged $3.62 per MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.62 per MMBtu and $5.00 per MMBtu.

U.S. Coal Prices

EIA expects nominal annual average coal prices to the electric power industry to fall for the first time since 2000, from $2.40 per MMBtu in 2012 to $2.35 per MMBtu in 2013. EIA forecasts average delivered coal prices of $2.39 per MMBtu in 2014.

U.S. Electricity Retail Prices

The rising cost of generation fuels, particularly natural gas, contributes to a projected increase in the residential price of electricity. During the upcoming winter months, EIA expects the U.S. residential electricity price to average 11.9 cents per kilowatthour, which is 2.1% higher than in the winter of 2012-13.

http://www.eia.gov/forecasts/steo/report/prices.cfm