Households will save hundreds of dollars from gas savings in 2015 and oil should maintain low prices. However, 2016 can experience a complete reversal in the current trend. Those are some of the predictions made by the U.S. Energy Information Administration’s short-term energy outlook.
Diesel and gas
As of Jan. 12, average diesel prices were $3.053 and gasoline at $2.139, the lowest since May 2009. EIA estimates that average diesel prices for 2015 will be $2.85 but return to higher prices at $3.25 in 2016.
Lower prices equals higher savings. U.S. households are expected to save $750 at the pump in 2015 when compared to money spent on gasoline in 2014. With diesel also at lower prices, commercial drivers can also expect a significant savings in fuel, albeit at the cost of lower fuel surcharges.
As expected, EIA predicts fuel consumption to increase in 2015 as a result of lower prices. As consumption grows so will prices, resulting in lower consumption in 2016, according to EIA’s outlook.
Ultra-low oil prices have been the result of high production surpassing low demand, with EIA estimating that global inventories for 2014 were the highest since 2008. EIA is predicting an increase in inventories for the first half of 2015, but also expects supply to slow down toward the end of the year. Lower supply met with potentially high demand can drive prices back up.
However, oil prices tend to be volatile. In its report, EIA predicts that WTI oil in April 2015 fall somewhere within a range of $34 and $76. For December, the range widens to $28 and $112. Brent crude could average $58 in 2015 and $75 in 2016. As of press time, WTI was trading at $47.33 and Brent at $49.10.
EIA expects WTI’s price advantage to average between $3 and $4. Earlier this week, Brent crude briefly traded at lower prices than WTI, the first time since 2013 and only the third time since 2010. Historically, WTI has a price advantage over Brent, usually by several dollars. On Wednesday, Jan. 14, WTI settled with only a 21-cent premium.
With oil companies losing money on low prices, exploration drilling is expected to decrease in 2015. EIA is forecasting oil companies to focus their efforts on areas with known oil supplies. This could lead to job losses in shale exploration. Looking further ahead, the agency is estimating increased production and drilling for 2016, possibly bringing back any jobs lost in 2015.
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