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Short-Term Energy Outlook

Release Date: June 6, 2017  |  Next Release Date: July 11, 2017  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Petroleum Products

Gasoline prices: The front-month futures price of reformulated blendstock for oxygenate blending (RBOB, the petroleum component of gasoline used in many parts of the country) rose by 7 cents per gallon (gal) since May 1, settling at $1.60/gal on June 1 (Figure 5). The RBOB-Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) rose by 10 cents/gal, settling at 40 cents/gal on June 1.

The average gasoline crack spread in May was 9 cents/gal lower compared with the same time last year, continuing a trend seen for much of 2017. The lower gasoline crack spread may be reflecting both smaller declines in gasoline stocks this year, as well as lowered expectations of U.S. gasoline consumption growth this summer compared with the strong growth in consumption seen in 2015 and 2016. Despite lower growth projections for gasoline consumption this year, EIA still forecasts gasoline consumption to reach a record high this summer. Gasoline stocks in the Petroleum Administration of Defense District (PADD) 1B, which includes the New York Harbor delivery point of the RBOB futures contract, declined by 0.3 million barrels from April 28 to May 26, according to EIA's Weekly Petroleum Status Report (WPSR). Over the past five years, however, gasoline stocks in PADD 1B have declined an average of 1.7 million barrels during that period, according to EIA's Petroleum Supply Monthly (PSM).

Initial estimates from the WPSR show that U.S. gasoline consumption in May was 9.6 million b/d, which was 0.16 million b/d higher than gasoline consumption in May 2016, as shown in the PSM. As the traditional U.S. peak driving season begins, the degree to which gasoline consumption increases compared with last year will affect the gasoline crack spread this summer. U.S. gasoline consumption from June to August is forecast to be 0.4% higher than the same months in 2016.

Figure 5: Brent crude oil vs U.S. and Chinese equity indices

Gasoline spot market: The gasoline spot price premium for California RBOB (CARBOB) in San Francisco over the RBOB front-month futures contract rose in May because of unplanned refinery outages coinciding with planned maintenance. On May 18, the San Francisco CARBOB price premium reached a 17-month high (Figure 6). In early May, Valero Energy Corporation's refinery in Benicia, California, near the San Francisco Bay area, experienced an unplanned outage. In addition, several refineries are undergoing or expected to undergo planned maintenance, including Tesoro's refineries in Martinez, California, and Carson, California, along with PBF Energy's refinery in Torrance, California. As a result, gasoline prices, particularly in the San Francisco Bay area, rose because of anticipated tight gasoline supply in the California market.

Gasoline prices on the U.S. West Coast are more susceptible to sharp price increases after supply disruptions because its geographic isolation and unique fuel specifications can make it difficult to quickly resupply the area. Initial estimates from the California Energy Commission show a 9% decline in refinery input of crude oil in California after the unplanned outage at Valero's refinery occurred. Further, the production of California Air Resources Board (CARB) reformulated gasoline (RFG) has been declining for three weeks since the outage. The increased premium of San Francisco gasoline prices began to attract gasoline imports. Weekly imports of total motor gasoline into the U.S. West Coast rose towards the end of May. Once the gasoline supply constraints begin to ease, the premium of San Francisco CARBOB will likely decline closer to more normal levels.

Figure 6: Crude oil implied volatility

Ultra-low sulfur diesel prices: The ultra-low sulfur diesel (ULSD) futures price rose by 1 cent/gal since May 1, settling at $1.50/gal on June 1. The ULSD-Brent crack spread (the difference between the price of ULSD and the price of Brent crude oil) increased by 4 cents/gal, settling at 30 cents/gal over the same period (Figure 7). The monthly average crack spread for distillate has remained between 28 cents/gal and 33 cents/gal since January 2017, likely reflecting the consistent levels of distillate exports so far this year and the rebound in U.S. distillate consumption.

In the WPSR, U.S. distillate inventories declined by 3.6 million barrels from April 28 to May 26. In contrast, distillate inventories rose by 2.1 million barrels on average during the same period over the past five years, according to the PSM. The decline in inventories came as domestic distillate consumption rose to a four-week average of 4.2 million b/d in May, according to the WPSR. Domestic distillate consumption has been rising as U.S. industrial activity increases. The U.S. manufacturing sector continues to expand, and U.S. industrial production rose 1% in April, the largest monthly increase in three years.

Figure 7: Probability of the December 2013 WTI contract expiring 
above price levels

U.S. Petroleum and Other Liquids
  2015 2016 2017 2018
Crude Oil prices (dollars per barrel)
WTI Spot Average 48.67 43.33 50.78 53.61
Brent Spot Average 52.32 43.74 52.69 55.61
Imported Average 46.34 38.69 47.26 50.09
Refiner Average Acquisition Cost 48.40 40.69 49.59 52.63
Retail prices including taxes (dollars per gallon)
Regular Gasoline 2.43 2.15 2.38 2.43
Diesel Fuel 2.71 2.31 2.66 2.81
Heating Oil 2.65 2.10 2.53 2.69
Production (million barrels per day)
Crude Oil 9.42 8.87 9.33 10.01
Natural Gas Plant Liquids 3.34 3.48 3.80 4.19
Fuel Ethanol 0.97 1.00 1.03 1.02
Biodiesel 0.082 0.101 0.104 0.109
Consumption (million barrels per day)
Motor Gasoline 9.18 9.33 9.34 9.37
Distillate Fuel Oil 4.00 3.88 3.99 4.05
Jet Fuel 1.55 1.61 1.63 1.62
Total Consumption 19.53 19.63 19.95 20.26
Primary Assumptions (percent change from previous year)
U.S. Real GDP Growth 2.6 1.6 2.2 2.6
Heating Degree Days -10.2 -5.1 0.4 8.5
Distillate-weighted Industrial Production -0.2 1.7 3.0 2.5

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