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16 OCTOBER 2016 | FUEL OIL NEWS | www.fueloilnews.com EIA PROJECTIONS FOR THE COMING SEASON North Sea Brent crude oil prices are forecast to average $43/b in 2016 and $52/b in 2017. West Texas Intermediate (WTI) crude oil prices are forecast to average $1/b less than Brent in 2016 and 2017. The current values of futures and options contracts suggest high uncertainty in the price outlook. For example, EIA's forecast for the average WTI price in December 2016 of $44/b should be considered in the context of Nymex contract values for December 2016 delivery. Contracts traded during the fi ve-day period ending September 1 suggest the market expects WTI prices could range from $34/b to $65/b in December 2016. U.S. crude oil production averaged 9.4 million barrels per day (b/d) in 2015. Production is forecast to average 8.8 million b/d in 2016 and 8.5 million b/d in 2017. Production levels in 2017 for this forecast are 0.2 million b/d higher than in the August STEO. The upward revisions to production largely refl ect an assumption of higher drilling activity, rig effi ciency, and well-level productivity than assumed in previous forecasts. U.S. regular gasoline retail prices are expected to decline from an average of $2.18/gallon (gal) in August to $1.92/gal in December. For the year, U.S. regular gasoline retail prices are forecast to average $2.08/gal in 2016 and $2.26/gal in 2017. Natural gas working inventories were 3,401 billion cubic feet (Bcf) on August 26. This level is 8% higher than last year during the same week, and 11% higher than the previous fi ve-year (2011-15) average for that week. EIA projects that natural gas inventories will be 4,042 Bcf at the end of October 2016, which would be the highest end-of- October level on record. Source: Short-Term Energy Outlook, published Sept. 7, 2016, by the Energy Information Administration more as well, though it has not returned to pre-sanction pro- duction levels, Levine noted. Larkin, the president of Hedge Solutions, noted too that Iran has been "consistently upping" its production numbers. Before sanctions were imposed, Iran produced roughly five million to five-and-a-half million barrels a day, Larkin said. Iran now is approaching four million barrels a day, he said. For its part, the U.S. over the past spring and summer seemed to cement its role as "the new swing producer," Larkin said. There was some uncertainty regarding how nimble the fracking industry could be in reacting to market changes, Larkin said. The unknown factor was how fast the fracking industry could return idled wells to production "if the price gets to a level that's economical for them," Larkin said. "What is that number?" Larkin asked. According to published predictions and analyses, Larkin noted, "some think it's $45, some think it's $50, some think it's closer to $60." A rally in May and June was telling, even though it didn't hold. Forward months were trading in the mid $50s per barrel, Larkin noted. "You look at how the rig counts recov- ered over the last ten to twelve weeks and there's clearly an indication that if the price gets to around $50 the fracking industry will bring [idled] production back on line," Larkin said. Companies can restart fracking wells "fairly quickly," Larkin said. "The only question is how quick they can bring the workers back." Baratz differed, viewing the fracking industry as somewhat encumbered in reacting to market changes. "It's not as if one day there's this piece of land in Oklahoma and then the next day it's kicking out fifty thousand barrels a day," Baratz said. "It's a process. It's very, very expensive." The cost of build- ing a well and the per-barrel cost of extraction once a well is producing are determining factors, Baratz said. A well might have been built with an expectation of getting "eighty dol- lars a barrel forever," Baratz said. If instead a barrel is at $40, the cost for the working well to extract crude becomes more significant, Baratz noted. "If it only costs twenty-seven dol- Heating oil retail price incl taxes, U.S. average dollars per gallon 4.00 2.00 0.00 projections Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-2017 Jul-2017 AVERAGE PRICE* FOR HEATING OIL *INCLUDES TAXES "I think this season is going to be very uncertain because there are a variety of factors that are working into the potential for oil pricing. One of them, of course, is the fact that we're sitting on very large quantities of crude oil and distillate fuels. That in itself will put something of a natural limit on the upside. I'd be very surprised if we could move much above fifty dollars a barrel." —Alan H. Levine, CEO and chairman of Powerhouse HEATING SEASON FUELS Outlook 2016 –2017