Brent crude oil prices expected to weaken

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Global Crude Oil Prices

Brent crude oil spot prices in February averaged between $108/bbl and $112/bbl for the eighth consecutive month. EIA expects the Brent crude oil price to weaken as non-OPEC supply growth exceeds growth in world consumption. The Brent crude oil price is projected to average $105/bbl and $101/bbl in 2014 and 2015, respectively.

The WTI crude oil spot price, which fell to $95/bbl in January 2014, increased to an average of $101/bbl in February as a result of strong Midwestern refinery runs after cold-weather-related disruptions in January. EIA expects that WTI crude oil prices will average $95/bbl in 2014, $2/bbl higher than last month's STEO, and $90/bbl during 2015. The discount of WTI crude oil to Brent crude oil averaged $8/bbl in February after averaging more than $13/bbl over the previous three months. EIA expects the discount of WTI crude oil to Brent crude oil to average $10/bbl in 2014 and $11/bbl in 2015, reflecting the economics of transporting and processing the growing production of light sweet crude oil in U.S. and Canadian refineries.

Energy price forecasts are highly uncertain, and the current values of futures and options contracts suggest that prices could differ significantly from the forecast levels (Market Prices and Uncertainty Report). WTI futures contracts for June 2014 delivery, traded during the five-day period ending March 6, 2014, averaged $101/bbl. Implied volatility averaged 18%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in June 2014 at $87/bbl and $118/bbl, respectively. Last year at this time, WTI for June 2013 delivery averaged $92/bbl and implied volatility averaged 22%. The corresponding lower and upper limits of the 95% confidence interval were $76/bbl and $111/bbl.

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 U.S. Petroleum Product Prices

Led by falling crude oil prices, the projected U.S. annual average regular gasoline retail price, which fell from $3.63/gal in 2012 to an average of $3.51/gal in 2013, will continue to fall to $3.45/gal in 2014 and $3.37 in 2015. Diesel fuel prices, which averaged $3.92/gal in 2013, are projected to average $3.85/gal in 2014 and $3.78/gal in 2015.

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U.S. Natural Gas Prices

Natural gas spot prices averaged $6.00/MMBtu at the Henry Hub in February, up $1.29/MMBtu from January, the result of bitterly cold weather during the month. At the end of February, both spot and futures prices declined rapidly, falling below $5/MMBtu. EIA projects that the March spot price will average $4.48/MMBtu, and will continue to decline in the spring. Projected Henry Hub natural gas prices average $4.44/MMBtu in 2014 and $4.14/MMBtu in 2015.

Natural gas futures prices for June 2014 delivery (for the five-day period ending March 6, 2014) averaged $4.55/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for June 2014 contracts at $3.51/MMBtu and $5.90/MMBtu, respectively. At this time last year, the natural gas futures contract for June 2013 averaged $3.61/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.79/MMBtu and $4.67/MMBtu.

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U.S. Coal Prices

Annual average coal prices to the electric power industry fell for the second consecutive year, from $2.38/MMBtu in 2012 to $2.35/MMBtu in 2013. EIA forecasts average delivered coal prices of $2.36/MMBtu in 2014 and $2.37/MMBtu in 2015.

U.S. Electricity Retail Prices 

EIA expects the U.S. residential price of electricity to average 12.3 cents per kilowatthour during 2014, an increase of 1.9% from 2013. Residential electricity prices increase 2.0% during 2015.

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