Lower than earlier forecast crude oil prices are expected to translate into continued low prices at the pumps for both diesel and gasoline, according to a new U.S. Energy Department report.
The Short-Term Energy Outlook released this week said average benchmark international crude oil, known as Brent crude, is forecast to average $50.79 per barrel this year and $51.58 per barrel in 2018, down 3.6% and 7.2%, respectively, from last month’s forecast.
Also, average benchmark domestic crude oil, known as West Texas Intermediate (WTI) crude, is expected to be even lower, averaging $48.95 this year and $49.58 in 2018, down 3.6% and 7.5%, respectively, when compared to the June forecast.
Last year Brent crude averaged $43.74 per barrel while WTI was at $43.33 per barrel, down from 2015 averages of $52.32 per barrel and $48.67 per barrel, respectively.
Part of the reason for the lower Brent crude prices is that its price declined by nearly 5% in late May following news that the OPEC oil cartel agreed to extended production cuts through the first quarter of 2018, as some market participants had anticipated more aggressive production rollbacks. Also, global oil inventories are forecast to be relatively unchanged in the second half of 2017 before returning to slight average inventory builds in 2018.
“The slight price discount of WTI to Brent in the forecast is based on the assumption that rising U.S. crude oil production will result in WTI-priced U.S. crude oil exports competing with international volumes priced off of Brent in global crude oil markets,” the report said.
The department also forecasts total U.S. crude oil production to average 9.3 million barrels per day in 2017, up 0.5 million barrels per day from 2016. In 2018, crude oil production is forecast to rise to an average of 9.9 million barrels per day. If achieved, forecast 2018 production would be the highest on record, surpassing the previous record of 9.6 million barrels per day set in 1970, according to the department.
All this is setting the stage for on-highway diesel projected to average $2.59 per gallon for this year, down 2.5% from last month’s forecast, but 12.1% higher when compared to 2016’s average. The average cost for 2018 is forecast to be $2.71 per gallon, down 3.5% from last month’s forecast, but still 4.6% higher than 2017’s anticipated average.
The average cost of on-highway diesel in 2016 was $2.31 per gallon while the 2015 average was higher at $2.71.
Meantime, gasoline is expected to be cheaper, with regular grade averaging $2.32 per gallon this year, down 2.3% from last month’s expectation, but still 8.1% higher than the 2016 average. The average cost in 2018 is projected to be $2.33 per gallon, down 4.1% from last month’s forecast and just 0.2% higher than the expected 2017 average.
In 2016 the average cost of regular grade gasoline averaged $2.15 per gallon and $2.43 per gallon in 2015.