EIA Short-term Energy Outlook -- Fuel Efficiency to Outpace Miles Traveled

April 9, 2013 09:38 AM

The U.S. Energy Information Administration released its Short-term Energy Outlook (STEO) today for the summer of 2013 with projections into 2014. Brent crude pricing is expected to fall below 2012 levels and average $108/barrel in 2013 and $101/barrel in 2014. Retail gasoline is expected to remain near current levels nationwide, falling to this year's projected low of $3.57/gallon by September.

The report also includes a 2013 summer fuels outlook which expects non-OPEC crude production to outpace world liquid fuels consumption for the first time since 2009. As a result, world oil spare production capacity is expected to increase -- mostly in North America -- and support cutbacks in OPEC production. The report is quick to point out a 95% confidence interval which could signal high volatility ahead.

Moving forward, slight declines in Brent crude pricing compared to last year should offset any increases in ethanol pricing as blending has yet to recover from the drought. A full recovery is not expected until the end of the summer, but with Brent and WTI both set to move lower, the overall trend is for gasoline to move 6 cents lower by national average pricing later in 2013.

An interesting demand matrix is also referenced in the report which tracks the relationship of gasoline consumption to growth in miles traveled. Due to increased fuel efficiency and declining growth in miles driven annually, demand for retail gasoline may see declines as motorists stay closer to home and consume less gasoline when they do hit the road. This could have gasoline turning bearish, but summer often signals the advent of profit taking season for gasoline retailers and price hikes are likely near-term. But this demand dynamic should help keep a lid on upside action.

Highway diesel pricing is expected to average a penny less nationwide in 2013, but with the distillate supply still slavish to the long winter, declines are not likely to arrive until after the summer driving season.

Text Highlights from EIA's Short-term Energy Outlook follow:                        

  • During the April-through-September summer driving season this year, regular gasoline retail prices are forecast to average $3.63 per gallon. The projected monthly average regular retail gasoline price falls from $3.69 per gallon in May to $3.57 per gallon in September. EIA expects regular gasoline retail prices to average $3.56 per gallon in 2013 and $3.39 per gallon in 2014, compared with $3.63 per gallon in 2012. The July 2013 New York harbor reformulatedeialogo blendstock for oxygenate blending (RBOB) futures contract averaged $2.97 per gallon for the five trading days ending April 4, 2013. Based on the market value of futures and options contracts, there is a 12 percent probability that its price at expiration will exceed $3.35 per gallon, consistent with a monthly average regular-grade gasoline retail price exceeding $4.00 per gallon in July 2013. (see EIA Summer Fuels Outlook slideshow)
  • EIA expects that the Brent crude oil spot price, which averaged $112 per barrel in 2012 and rose to $119 per barrel in early February 2013, will average $108 per barrel in 2013 and $101 per barrel in 2014. The projected discount of West Texas Intermediate (WTI) crude oil to Brent, which increased to a monthly average of more than $20 per barrel in February 2013, is forecast to average $14 per barrel in 2013 and $9 per barrel in 2014, as planned new pipeline capacity lowers the cost of moving mid-continent crude oil to the Gulf Coast refining centers.
  • Natural gas working inventories ended March 2013 at an estimated 1.69 trillion cubic feet (Tcf), about 0.79 Tcf below the level at the same time a year ago and 0.41 Tcf below the five-year average (2008-12). EIA expects the Henry Hub natural gas spot price, which averaged $2.75 per million British thermal units (MMBtu) in 2012, will average $3.52 per MMBtu in 2013 and $3.60 per MMBtu in 2014.
  • With actual and forecast natural gas prices in the first 9 months of 2013 well above those during the comparable 2012 period, electricity generators using natural gas are expected to lose some of the market share gained from coal generation in 2012.



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