Oil Continues Downward Spiral
The latest report from the U.S. Energy Information Administration presents several key findings, including:
• North Sea Brent crude oil spot prices fell by more than 15% in November, declining from $85/barrel (bbl) on November 3 to $72/bbl on November 28. Monthly average Brent crude oil prices have declined 29% from their 2014 high of $112/bbl in June to an average of $79/bbl in November, the lowest monthly average since September 2010. The November price decline reflects continued growth in U.S. tight oil production along with weakening outlooks for the global economy and oil demand growth.
• The current values of futures and options contracts suggest high uncertainty in the price outlook (Market Prices and Uncertainty Report). WTI futures contracts for March 2015 delivery, traded during the five-day period ending December 4, averaged $67/bbl. Implied volatility averaged 32%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in March 2015 at $51/bbl and $89/bbl, respectively. Last year at this time, WTI for March 2014 delivery averaged $96/bbl and implied volatility averaged 19%. The corresponding lower and upper limits of the 95% confidence interval were $82/bbl and $112/bbl.
• Total U.S. crude oil production averaged an estimated 9.0 million barrels per day (bbl/d) in November. Projected total crude oil production averages 9.3 million bbl/d in 2015, a reduction of 0.1 million bbl/d from last month's STEO.
• Natural gas working inventories on November 28 totaled 3.41 trillion cubic feet (Tcf), 0.23 Tcf (6%) below the level at the same time a year ago and 0.37 Tcf (10%) below the previous five-year average (2009-13). Despite the lower stocks at the start of this winter's heating season, EIA expects the Henry Hub natural gas spot price to average $3.98/million British thermal units (MMBtu) this winter compared with $4.53/MMBtu last winter, reflecting both lower expected heating demand and higher natural gas production this winter.