WASHINGTON, March 9, 2016 - Oil prices rallied earlier this week as many analysts expected declines in oil drilling would shrink global supplies, but the upswing didn’t last long.

On Tuesday, the U.S. Energy Information Administration (EIA) reported in its March revision to its Short-Term Energy Outlook (STEO) that the nation’s crude oil production dropped to 9.1 million barrels a day in February, a decline of 80,000 barrels a day from January. For 2016, the EIA is forecasting average production of 8.7 million barrels a day, down from an estimated 9.4 million barrels a day in 2015. For 2017, production is forecast to average 8.2 million b/d.

But EIA is not predicting any big price rebound anytime soon. Brent crude prices rose by $1 a barrel in February to $32 and are now forecast to average $34 a barrel in 2016 and $40 a barrel in 2017. Those forecasts are lower by $3 and $10 a barrel, respectively, from the prior estimates. The agency said that the “lower forecast prices reflect oil production that has been more resilient than expected in a low-price environment and lower expectations for forecast oil demand growth.”

Other highlights from the STEO:

  • Forecast West Texas Intermediate (WTI) crude oil prices are expected to average the same as Brent in 2016 and 2017. However, 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 June 2016 of $35/b should be considered in the context of recent Nymex contract values for June 2016 delivery (Market Prices and Uncertainty Report) suggesting that the market expects WTI prices to range from $24/b to $58/b (at the 95 percent confidence interval).
  • Natural gas working inventories were 2,536 billion cubic feet (Bcf) on Feb. 26, 46 percent higher than during the same week last year and 36 percent higher than the previous five-year average (2011-15) for that week. EIA forecasts that inventories will end the winter heating season (March 31) at 2,288 Bcf, which would be 54 percent above the level at the same time last year. Henry Hub spot prices are forecast to average $2.25/million British thermal units (MMBtu) in 2016 and $3.02/MMBtu in 2017, compared with an average of $2.63/MMBtu in 2015.
  • Natural gas is expected to fuel the largest share of electricity generation in 2016 at 33 percent, compared with 32 percent for coal. This would be the first time that natural gas provides more electricity generation than coal on an annual average basis. In 2017, natural gas and coal are both forecast to fuel 32 percent of electricity generation. For renewables, the forecast share of total electricity generation supplied by hydropower rises from 6 percent in 2016 to 7 percent in 2017, and the forecast share for other renewables increases from 8 percent in 2016 to 9 percent in 2017.

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