American Oil and Gas Reporter - February 2015 - 151

EIA: Prices To Rebound, But Slowly
WASHINGTON-Brent crude oil prices
may average $58 a barrel in 2015 and
$75 a barrel in 2016, the U.S. Energy Information Administration estimates. The
January 2015 edition of the EIA's ShortTerm Energy Outlook includes its first
forecasts for 2016.
EIA predicts annual average West
Texas Intermediate prices will be $3-$4
a barrel below Brent in 2015 and 2016.
The current values of futures and options
contracts suggest very high uncertainty
in the price outlook, it says.
According to the EIA, WTI futures
contracts for April 2015 delivery-traded
in early January-averaged $51 a barrel.
This established the lower and upper
limits of the 95 percent confidence interval
for the market's expectations of monthly
average WTI prices in April 2015 at $34
and $76 a barrel, respectively. EIA notes
the 95 percent confidence interval for
market expectations widens considerably
over time, with lower and upper limits of
$28 a barrel and $112 a barrel for prices
in December 2015.
Production Up, Prices Down
In its report, EIA forecasts total crude
oil production will average 9.3 million
barrels a day in 2015. U.S. production
estimates for 2016 expect an average of
9.5 MMbbl/d, which would be second
only to 9.6 MMbbl/d in 1970 as the
highest annual average production in U.S.
history.
EIA also projects U.S. regular gasoline
retail prices will average $2.16 a gallon
in the first quarter of 2015. It says it
expects gasoline prices-which averaged
$3.36 a gallon in 2014-to average $2.33
a gallon in 2015.
Because of the lower prices, EIA says
it estimates the average household will
spend about $750 less on gasoline during
2015 compared with last year. The projected retail price increases to an average
of $2.72 a gallon in 2016.
According to the Outlook, in early
January, natural gas working inventories
totaled 3.09 trillion cubic feet, 250 billion
cubic feet or 9 percent above the level at
the same time a year ago and 70 Bcf, or
2 percent, below the previous five-year
average.
EIA states it expects the Henry Hub
natural gas spot price to average $3.52
an MMBtu this winter, compared with
$4.51 an MMBtu last winter. This reflects
both lower-than-expected space heating
demand and higher natural gas production
this winter, it says. Turning to annual

measures, EIA says it predicts the Henry
Hub natural gas spot price will average
$3.44 an MMBtu in 2015 and $3.86 an
MMBtu in 2016, compared with $4.39
an MMBtu in 2014.
EIA reports December was the sixth
consecutive month of decreasing monthly
average Brent prices, as they fell $17 a
barrel. December's monthly average of
$62 a barrel was the lowest price since
May 2009. EIA asserts 2014's fourthquarter price decline demonstrates continued growth in U.S. tight oil production,
strong global supply, and weakening outlooks for the global economy and oil demand growth.
According to EIA, total U.S. crude
oil production averaged an estimated 9.2
million barrels a day in December. Driven
largely by falling crude oil prices, U.S.
weekly regular gasoline retail prices averaged $2.14 a gallon in mid-January-
the lowest since May 2009, the administration confirms.
Crude Oil Prices
EIA says it anticipates global oil inventories will continue building in 2015,
which will keep downward pressure on
oil prices. The forecast Brent crude oil
price averages $58 a barrel in 2015; and
based on current market balances, EIA
says it expects downward price pressures
to be strongest in the first half of 2015,
when global inventory builds are expected
to be particularly strong. The report projects that Brent prices will reach a 2015
monthly average low of $49 a barrel in
January and February, and then increase
through the remainder of the year to average $67 a barrel during the fourth
quarter.
The monthly average WTI crude oil
spot price fell from an average of $76 a
barrel in November to $59 a barrel in
December, EIA confirms. Monthly average
WTI prices had fallen more than 44
percent as of December after reaching
their 2014 peak of $106/bbl in June.
EIA notes it now expects WTI crude
oil prices to average $55 a barrel in 2015
and $71 a barrel in 2016. The discount
of WTI to Brent crude oil is forecast to
widen slightly later in the forecast, averaging $3 a barrel in 2015 and $4 a barrel
in 2016.
However, the report states that the current values of futures and options contracts
suggest high uncertainty in the price outlook. WTI futures contracts for April 2015
delivery averaged $51 a barrel, and implied
volatility averaged 48 percent.

Several factors could cause oil prices
to deviate significantly from current projections, such as the responsiveness of
supply to lower prices, EIA acknowledges.
Product Prices
According to the Outlook, U.S. average
regular gasoline retail prices fell from a
monthly average of $3.69 a gallon in
June to $2.54 a gallon in December-the
lowest monthly average since July 2009.
EIA says it anticipated gasoline retail
prices would fall to an average of $2.13
a gallon in January 2015. Retail prices,
which averaged $3.36 a gallon in 2014,
are projected to average $2.33 a gallon
in 2015, and $2.72 a gallon in 2016.
Diesel fuel retail pump prices, which
averaged $3.83 a gallon in 2014, are projected to fall to an average of $2.85 a
gallon in 2015, but rise to $3.25 a gallon
in 2016, the administration says.
The Outlook also reports that lower
projected crude oil prices are helping reduce expenditures forecast for residential
heating oil and average household heating
oil this winter compared with last. The
average household that uses heating oil
as its primary space heating fuel is expected to pay an average of $2.90 a gallon
this winter, $0.98 a gallon less than last
winter.
The average household will spend $1,586
for heating oil this winter, EIA projects,
which is $767 less than last winter. Propane
prices are expected to be 17 percent lower
in the Northeast and 27 percent lower in
the Midwest; thus, households will spend
24 percent and 35 percent less on propane
in those regions, respectively.
Natural Gas Prices
The Henry Hub natural gas spot price
averaged $3.48 an MMBtu in December,
a decline of $0.64 an MMBtu from November, the administration says. Monthly
average spot prices are expected to remain
less than $4.00 an MMBtu until the fourth
quarter of 2016.
EIA says it projects Henry Hub natural
gas price averages of $3.44 an MMBtu
in 2015 and $3.86 an MMBtu in 2016.
According to EIA, natural gas futures
prices for April 2015 delivery averaged
$2.88 an MMBtu. Options and futures
prices imply that market participants
placed the lower and upper bounds for
the 95 percent confidence interval for
April 2015 contracts at $1.90 an MMBtu
and $4.36 an MMBtu, respectively. Ì
FEBRUARY 2015 151

American Oil and Gas Reporter - February 2015

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