US EIA Lowers Oil Price Estimate, Sort Of

The US Energy Information Administration (EIA) today released the latest update to its Short-Term Energy Outlook for 2012. The agency has lowered its estimated second half of 2012 average price for a barrel of WTI crude oil from $95/barrel in its June revision to $88/barrel today. The refiner’s acquisition cost of $100/barrel was also lowered by $7 to $93/barrel.

The EIA also added for the first time a forecast for Brent crude, estimating an average annual price for 2012 of $106/barrel, falling to $98/barrel in 2013. The EIA estimates that the price spread between WTI and Brent crudes will close from about $14/barrel now to $8/barrel by the end of 2013. The narrower spread is based on increased pipeline capacity to transport crude oil from Cushing, Oklahoma, to the Gulf Coast. Increased transportation by rail and truck from the north central US will also help close the spread somewhat.

One thing to notice, though, is that a Brent price of $98/barrel by the end of next year implies a $90/barrel price for WTI at the same time. The current WTI price estimate for the second half of this year is $88/barrel, $2/barrel less than the estimated price for December 2013. Crude will cost refiners more, and refiners will price their products higher as well.

Increased transportation availability for WTI crude, particularly from Cushing to the Gulf Coast and from Canada and North Dakota will, according to the EIA, raise the price of domestic and Canadian crude relative to the price of Brent. That means that filling up your gasoline tank will cost more. But the EIA projection calls for gasoline pump prices to fall by $0.20/gallon, from a US average of $3.39/gallon in June 2012 to $3.19/gallon in December 2013.

Of course these are just estimates, but higher crude input prices generally don’t yield lower gasoline output prices — unless crude oil refiners are planning to hold going-out-of-business sales.

Paul Ausick