U.S. Energy Information Administration | Short-Term Energy Outlook March 2018 2
weather moderated in February after extremely cold temperatures in much of the
country during the first half of January. U.S. heating degree days were an estimated 17%
lower than the 10-year average for February, which contributed to lower consumption
and prices.
EIA expects natural gas prices to moderate in the coming months, based on a forecast of
record natural gas production levels. EIA expects Henry Hub spot prices to average
$2.72/MMBtu in March and $2.99/MMBtu for all of 2018. In 2019, EIA forecasts prices
will average $3.07/MMBtu. NYMEX contract values for June 2018 delivery that traded
during the five-day period ending March 1, 2018, suggest that a range of $2.16/MMBtu
to $3.49/MMBtu encompasses the market expectation for June Henry Hub natural gas
prices at the 95% confidence level.
Electricity, coal, renewables, and emissions
EIA expects the share of U.S. total utility-scale electricity generation from natural gas-
fired power plants to rise from 32% in 2017 to 34% in both 2018 and 2019. The forecast
generation share from coal in both 2018 and 2019 averages 29%, down from 30% in
2017. The nuclear share of generation was 20% in 2017 and is forecast to average 20%
in 2018 and 19% in 2019. Nonhydropower renewables provided slightly less than 10% of
electricity generation in 2017 and are expected to provide 10% in 2018 and nearly 11%
in 2019. The generation share of hydropower was over 7% in 2017 and is forecast to fall
below 7% in both 2018 and 2019.
EIA forecasts coal production to decline by almost 5% to 736 million short tons (MMst)
in 2018 and then increase by 1% to 745 MMst in 2019. Lower expected global demand
for U.S. coal exports (down 17% in 2018 and another 5% in 2019) and lower forecasts of
coal use in the electric power sector (down 5% in 2018) contribute to the forecast of
lower coal production.
U.S. coal exports were 97 MMst in 2017, a 61% increase from the previous year, but
they are expected to decrease in both 2018 and 2019. Exports of metallurgical coal,
which are used in the steelmaking process, remain at 55 MMst in 2018 and decline to 54
MMst in 2019.Steam coal exports, which were an estimated 42 MMst in 2017, are
expected to decline to 26 MMst and 23 MMst in 2018 and 2019, respectively.
In 2017, EIA estimates that wind generated on average 697,000 megawatthours per day
(MWh/d). EIA projects that generation from wind will rise to 722,000 MWh/d in 2018
and to 778,000 MWh/d in 2019.If factors such as precipitation and snowpack remain as
forecast, conventional hydropower is projected to generate 747,000 MWh/d in 2019,
which would make it the first year that wind generation exceeds hydropower
generation.
U.S. Energy Information Administration | Short-Term Energy Outlook March 2018 3
Total solar electricity generation averaged an estimated 211,000 MWh/d in 2017.EIA
projects that it will reach 246,000 MWh/d in 2018 and 294,000 MWh/d in 2019.
After declining by 0.6% in 2017, EIA projects that energy-related carbon dioxide (CO2)
emissions will increase by 1.0% in 2018 and by another 0.8% in 2019. Energy-related
CO2 emissions are sensitive to changes in weather, economic growth, and energy prices.
Petroleum and natural gas markets review
Crude oil
Prices: The front-month futures price for North Sea Brent crude oil settled at $63.83 per barrel
(b) on March 1, a decrease of $5.82/b since February 1. Front-month futures prices for West
Texas Intermediate (WTI) crude oil for delivery at Cushing, Oklahoma, decreased $4.81/b over
the same period, settling at $60.99/b on March 1 (Figure 1). February Brent and WTI monthly
average spot prices were $3.76/b and $1.49/b lower than the January average spot prices,
respectively.
Crude oil prices declined in February after seven consecutive months of increases. Despite the
recent price declines, most fundamental crude oil supply and demand indicators suggest global
petroleum inventories are declining. EIA estimates that total commercial petroleum inventories
in countries in the Organization for Economic Cooperation and Development (OECD) declined to
2.83 billion barrels in February 2018, a decrease of 211 million barrels since February 2017 and
the largest annual decrease in inventories since 2003. Inventories are 40 million barrels (1.4%)
higher than the five-year average level for February, the narrowest difference to five-year
average levels since November 2014, suggesting an increasingly balanced market.
A significant increase in price volatility after prices started declining in equity and bond markets
likely affected crude oil prices as well. The rolling 60-day correlation between daily price
U.S. Energy Information Administration | Short-Term Energy Outlook March 2018 4
changes of WTI crude oil and the S&P 500 index recently increased from near zero at the
beginning of January to over 0.3 in late February. The VIX, a measure of implied volatility (the
market’s expected range of near-term price changes) on S&P 500 index options, closed above
the OVX, a measure of implied volatility on crude oil options prices, for four consecutive days in
early February. Not only was this the first time since 2008 that the VIX closed above the OVX,
but the VIX has only closed above the OVX four other times since the inception of the OVX in
2007 (Figure 2).
Under typical trading conditions, a single commodity would be expected to have higher volatility
than an index whose underlying value consists of a basket of 500 large capitalization stocks,
representing a variety of U.S. companies. Although the direct causes of increased equity market
volatility remain uncertain, increased trading volume of inverse VIX exchange-traded funds (ETF)
and exchange-traded notes, as well as direct selling of VIX futures contracts, could have
contributed to the increase. A significant increase in volatility may have prompted the inverse
VIX ETF to close positions. Several inverse VIX products have ceased trading, having lost more
than 80% of their value in one day on the some of the highest trading volume in the many ETFs’
history. Both the VIX and the OVX have declined since their early February increases, but remain
at higher levels than at the beginning of 2018.
The Brent-WTI price spread narrowed to its lowest level in more than six months, closing at
$3.03/b on March 1 (Figure 3). Several factors specific to the crude oil market in the U.S.
midcontinent could be contributing to a narrowing spread. Crude oil stocks in Cushing,
Oklahoma, the delivery point for the U.S. light sweet crude oil futures contract, continued to
decrease in February. Stocks declined to less than 29 million barrels the week ending February
23, 2018, the lowest level in more than three years, and they are being drawn down at the
largest rolling 13-week rate since EIA began publishing Cushing stock levels in 2004. Recent
trade press reports that the Keystone pipeline, which flows directly into Cushing, is still
operating below nameplate capacity. Crude oil inputs to refineries in Petroleum Administration