eia short‐term energy outlook. apr12_uncertainty

8/2/2019 EIA ShortTerm Energy Outlook. apr12_uncertainty

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U.S. Energy Information Administration/Short-Term Energy Outlook Supplement April 20121

IndependentStatistics&AnalysisU.S. Energy Information

Administration April2012

ShortTerm

Energy

Outlook

MarketPricesandUncertaintyReport1

April9,2012Release

CrudeOilPrices: Aftermovinghigherinthefirsttwomonthsofthisyear,crudeoilpriceshavetradedinanarrowrangeduringthemonthofMarch. FrontmonthfuturespricesforBrentandWTI

settledat$123.43and$103.31perbarrel,respectively,onApril5(Figure1). Thesepricesareat

thelowerendofthe$4and$6perbarreltradingrangesobservedforthesetwobenchmarks

overthe

last

month.

The

average

price

for

Brent

in

March

was

$124.46

per

barrel,

the

highest

sinceJuly2008.

Therecentpricestabilitysuggeststhatlittlehaschangedwithregardtothemarkets

expectationsforfuturesupplyanddemandofcrudeoil. Continuedsupplydisruptionsin

SouthSudan,SyriaandYemenhavebeenoffsetbyhigherOPECproductionaswellasreduced

crudeoilconsumptionduetorefinerymaintenance. EIAestimatesthatglobalcrudeoiland

petroleumproductinventoriesarecurrentlybuilding,abearishsignforprices,whiletightness

inspareproductioncapacityprovidessupporttocurrentpricelevels.

1 This is a regular monthly companion to the EIA Short-Term Energy Outlook.

(http://www.eia.doe.gov/emeu/steo/pub/contents.html)

Contact: James Preciado ([email protected])


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Timespreadsacrosscrudeoilfuturescontractsareameasureofcurrentmarketconditions

relativetofutureexpectationsandcanprovideincentivetoeitherstoreoilnowordrawdown

inventories. Thedifferencebetweenthefrontmonthcontractandthethirdmonthcontract

focusesmoreonmarketexpectationsoverthenextfewmonths,asopposedtousingalonger

termspread

such

as

front

month

and

12th

month.

The

Brent

time

spread

increased

in

February,

reachingabout$1.75perbarrelforthefivedayperiodendingMarch1,butthendecreasingby

$.60perbarrelforthefivedayperiodendingApril5,reducingincentivetoselloiloutof

inventoriesnow,andsupportingestimatesthatworldpetroleuminventoriesmaybuildmore

thanpreviouslyanticipatedduringtherefinerymaintenanceperiod(Figure2).

ThediscountofWTItoBrentwidenedduringthemonthofMarchfromanaverageof$13per

barrelforthe5dayperiodendingMarch1to$19perbarrelforthefivedayperiodendingApril

5(Figure3). Theupwardtrendofthepricespreadsuggeststhatthetransportationcostfor

movingthemarginalbarrelofWTIfromCushingOklahomatoU.S.GulfCoastrefinerieshas

risen.Increased

oil

production

from

the

Bakken

formation

in

North

Dakota

may

also

be

causingtheBrentWTIspreadtowiden. Muchoftheincreasedproductionfromthetightoil

play,partlyduetoarelativelymildwinterhavinglessofanimpactonproductioncomparedto

lastyear,ismakingitswaytoCushing. ThediscountofBakkenoiltoWTIrepresentsasecond

transportationconstraintforminginPADD2,asthisspreadhaswidenedfromunder$5per

barrelinearlyJanuaryto$11perbarrelforthefivedaysendingApril5.


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Crudeoilandequities: TheS&P500isanindexofstockpricesofthe500largestcompaniesintheUnitedStates,measuredbymarketcapitalization,andtendstorisewithexpectationsfor

futureeconomicgrowth. CrudeoilisanimportantpartoftheU.S.economyaspetroleum

productsmakeupalargecomponentoftheenergynecessarytotransportgoodsandprovide

services. Astheeconomystartedgrowingfollowingthefinancialcrisisin2008andearly2009,

theprice

of

crude

oil

relative

to

the

value

of

U.S.

equities

remained

nearly

constant,

with

the

ratiooftheS&P500dividedbythepriceofBrenthoveringjustunder14(Figure4). In2011and

2012,thepriceofoilmovedhighercomparedtootherassetclasses,includingstocks,inlarge

partduetoactualoranticipatedsupplydisruptions. Theaveragefortheratiointhemonthof

Marchwas11.1,onlyslightlyabovethelowsetinJulyof2008of9.3.

OpenInterest: Afterincreasingtobegintheyear2012toahighof228thousandcontractsonFebruary28,thenetopeninterestformoneymanagershasbeendecreasingoverthelastfive

weeks. Initially,thedeclineinnetpositionswasduetoanincreaseofshortpositionsheldby

tradersclassifiedasmoneymanagersaccordingtotheCFTC. Subsequently,longpositions

werealso

reduced

and

contributed

to

the

decline

in

net

open

interest.

As

of

April

2,

money

managersheld180thousandWTIfuturescontractstradedonNYMEX(Figure5).

Volatility:TheVIX,ameasureofimpliedvolatilityfortheS&P500calculatedfromoptions

expiringwithinthenext30days,andtheOVX,asimilarmeasureforWTIcrudeoil,both

movedlowerinthemonthofMarch. TheOVXindexsettledat28percentonApril5,4

percentagepointsbelowitsvalueonFebruary1,andremainshighlycorrelatedwiththeVIX


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(Figure6). ImprovingeconomicdatafromtheU.S.overthelastfewmonthshaspusheddown

themarketsexpectationsforpricevolatilityinthenearfutureascontinuedeconomicgrowth

canprovidesupportforpotentialfuturereturnsforU.S.companiesaswellasdemandforcrude

oil.

Anotherwaytolookatimpliedvolatilityforcrudeoilfuturesisthevolatilityskew,whichis

constructedbygraphingimpliedvolatilityforoutofthemoneycallandputoptioncontracts

bytheirstrikeprice. Impliedvolatilityforputs,aswellasformostoutofthemoneycalls,

droppedoverthelasttwomonthsbyasimilaramounttowhatwasseeninthebroaderOVX

index(Figure7). However,calloptionswithstrikegreaterthan$135forJune2012,whichwill

onlyhavevalueifthepriceofcrudeoilincreasestoover$135perbarrelbyexpirationofthe

Junecontracts,havehadincreasingimpliedvolatility. Thissuggeststhatthemarkets

perceptionofriskssurroundingeventsthatcouldleadtolargeupwardpricemovementshave

notabatedoverthelasttwomonths.

MarketDerivedProbabilities:TheaveragepriceofWTIcrudeoilforJunedeliveryforthefivedaysendingApril5hasincreasedby$4perbarrelsinceFebruary1andimpliedvolatilityfor

thatfuturescontracthasmovedlowerby6percentagepointsoverthesametimeperiod. Even

thoughtherewasanincreaseinprice,thelesstimeuntilthecontractexpiresresultedina

decreasedprobabilityforpricestosettlehighercomparedtomarketconditionsonFebruary1.

TheprobabilityoftheJune2012futurescontractexpiringabove$120perbarrelisnow6

percent,a7percentagepointdecreasefromthefivedayperiodendingFebruary1(Figure8). It


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shouldbenotedthattheseprobabilitiesdonotreflectthefuturepricedistributionofworld

waterbornecrudeoil. Theseprobabilitiesarebasedonthecumulativenormaldensitiesderived

frommarketexpectationsusingfuturesandoptionsprices. (SeeAppendicesIandIIofEIAs

October2009EnergyPriceVolatilityandForecastUncertaintyarticlefordiscussiononhowtheseprobabilitiesarederived.)

GasolinePrices:NewYorkHarborReformulatedBlendstockforOxygenateBlending(RBOB)prices

increasedduringthemonthofMarchbutataslowerpacecomparedtoJanuaryandFebruary

(Figure9). TheaveragefrontmonthpricefromMarch30throughApril5was$3.36pergallon,

upfromanaverageof$2.88pergallonforthefivedaysendingFebruary1.The$0.48increasein

monthlyRBOBpricesbetweenFebruaryandAprilcamefromacombinationofcrudeoilprice

increases,thechangeovertosummergradegasolineasoftheAprilcontract(thefrontmonth

contractduringMarch),andincreasesinthegasolinecrackspread. Crudeoilpricechanges

contributedthemosttotheincreaseingasolineprices,withBrentincreasingbyabout$12.50

perbarrel,

or

$0.30

per

gallon.

TheaveragepricedifferentialbetweenthewintergradeMarchcontractandthesummergrade

AprilcontractforthemonthofFebruarywas$0.16pergallon,whichisindicativeofthehigher

costofproducing,andhigherdemandfor,summergradegasoline. Thegasolinecrackspread

increasedbyanadditional7centspergallonbetweenJanuaryandMarchbeyondthecontract

specificationchanges(Figure10). Thehistoricalcrackspreadfuturescurveshowstheseasonal
http://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdf


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backwardationintheRBOBcurve,whichhasbecomeincreasinglysteepasofApril5(Figure11). PricesfortheMaycontractareconsiderablyhigherthantheAugustcontract,whichindicatestightnessinthecurrentmarket.

MarketDerivedProbabilities:TheJune2012RBOBfuturescontractaveraged$3.28forthefivetradingdaysendingApril5andhasaprobabilityofexceeding$3.35pergallon($4.00retail)atexpirationofapproximately40percent,andaprobabilityofexceeding$3.85pergallon($4.50retail)ofabout5percent. ThesamecontractasofthefivetradingdaysendingFebruary1hadaprobabilityofexceeding$4.00retailof23percent,andaprobabilityofexceeding$4.50retailof6percent. Acombinationofhighercrudeoilprices,increasedcrackspreads,andrelativelyunchanged

implied

volatility

contributed

to

a

higher

probability

of

the

June

contract

exceeding

$3.35pergallon,whilethelesstimetoexpirationwasresponsibleforkeepingtheprobabilityofexceeding$3.85pergallonconstant(Figure12).


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HeatingOilPrices:HeatingoilpricesfluctuatedslightlyoverthemonthofMarch,afterincreasingthrough

February. TheaveragepromptmonthpriceforMarch1throughApril5was$3.22,upfrom

$3.19inFebruaryand$3.05inJanuary(Figure13). Thepricedifferentialbetweencontracts

with

different

maturities

has

disappeared

with

the

approach

of

the

end

of

the

heating

season.

OnApril5,thepricesforheatingoildeliveryinMay,JuneandAugustwere$3.17,$3.18and

$3.20,respectively,indicatingaflatfuturescurve.

AccordingtotheEIAWeeklyProductSupplieddata,the4weekaverageofheatingoilanddieselfuelimpliedconsumptioninU.S.marketswasdown5percentinMarchfromthecomparable

weekly

average

one

year

ago.

This,

combined

with

generally

warmer

weather,

led

to

a

decreasingcrackspread(promptheatingoilminuspromptBrent)overthemonthofMarch

(Figure14). TheaveragecrackspreadforMarchwas$0.26centspergallon,downfrom$0.36in

February.
http://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htmhttp://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htmhttp://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htmhttp://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htmhttp://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htmhttp://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htm


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NaturalGasPrices:Naturalgasstockssawtheirfirstbuildof2012ontheweekendingMarch16when57

bcfwasaddedtoU.S.inventories. Typically,theinjectionseasonfornaturalgasdoesnotstart

untilthefirstweekinAprilandwithinventoriesalreadybeingnearly1000bcfhigherthantheir

fiveyearaverages,naturalgaspriceshavemovedlowerinresponsetoamplesupplies. The

frontmonthcontractfordeliveryofnaturalgastoHenryHubwas$2.08permmBtuonApril5,

adropof$0.38permmBtusinceMarch1(Figures15and16). Adjustedforinflation,the

averagepriceforthemonthofMarchwasthelowestsinceSeptember2001.

Volatility:Warmerthanusualtemperaturesduringthewinterheatingseasonwerelargely

responsibleforincreasesinpricevolatilityduringthemonthsofJanuaryandFebruaryasthe


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marketpricedinnewinformationaffectingexpectationsfornaturalgasdemand. Comingto

theendoftheheatingseasoninMarch,withdemandtypicallybeinglessvolatileandaclearer

pictureoftheamountofnaturalgasinU.S.inventories,volatility,alongwithprices,declined.

Historical30dayrealizedvolatilityisnow35percent,areturntolevelsseenatthebeginningof

thisyear,andfrontmonthimpliedvolatilityisnow44percent(Figure17).

MarketDerivedProbabilities: TheaveragepriceoverthefivetradingdaysendingonApril5fortheJune2012naturalgasfuturescontracthasfallenby$0.66perMMBtusinceFebruary1.

Eventhoughtherewasanincreaseinimpliedvolatilityof5percentagepointsforthatcontract,

thelowerpriceswereresponsibleforalargedecreaseintheprobabilityofnaturalgasprices

exceedingdifferentpricelevelscomparedtomarketconditionsacouplemonthsago. The

probabilitythattheJunecontractwillsettlehigherthan$3.00perMMBtufellby37percentage

pointsfrom43to6percentwhencomparedtomarketconditionsonthefivetradingdays

endingFebruary1(Figure18). Thesenaturalgasprobabilitiesarecumulativenormaldensities

generatedusingmarketbasedinputsprovidedbyfuturesandoptionsmarkets,i.e.,futures

pricesand

implied

volatilities.

(See

Appendices

Iand

II

of

EIAs

October

2009

EnergyPrice

VolatilityandForecastUncertaintyarticleforadditionaldiscussion).
http://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdfhttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_05.pdf

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