The US Energy Information Administration (EIA) expects that low inventories of distillate fuels, which are primarily consumed as diesel fuel and heating oil, will lead to high prices through early 2023. According to EIA’s November Short-Term Energy Outlook (STEO), diesel prices will remain higher than $5 per gallon the remainder of the year, and bills for homes that use heating oil will increase by 45% this winter season compared with last winter.
US distillate fuel inventories average 17% below the five-year average in the forecast for 2023. EIA estimates distillate inventories were 104 million barrels at the end of October, the lowest end-of-October level since 1951.
Inventories are just one part of the supply equation for diesel and other distillates. The distillate fuels in storage aren’t the only source of diesel we have to keep trucks and trains moving, but lower-than-average storage levels will contribute to higher costs for diesel and for heating fuels through the winter.—EIA Administrator Joe DeCarolis
EIA sees additional uncertainty in the global marketplace for distillates and other fuels as the European Union plans to ban imports of petroleum products from Russia in early 2023.
Other key takeaways from the November 2022 STEO forecast include:
EIA forecasts renewable energy sources will provide 24% of US electricity generation in 2023, up from an estimated 22% in 2022. “We expect notable decreases in electricity generation from natural gas and coal next year. Renewable energy is the only source that increases its share of electricity generation in 2023 in our forecasts,” DeCarolis said.
EIA forecasts Russia will produce 9.3 million barrels per day of crude oil and petroleum products in 2023, down 14% from estimated 2022 production. Russia is a member of OPEC+, which announced crude oil production cuts in October, but EIA expects other factors to primarily drive Russia’s cuts in production. “Russia faces significant and expanding sanctions following its invasion of Ukraine, and we expect those sanctions will have far more impact on Russia’s energy production than the planned OPEC+ production cuts,” DeCarolis said.
EIA estimates the Henry Hub natural gas price in the fourth quarter of 2022 and the first quarter of 2023 will be 17% lower than EIA previously forecast in October. EIA revised its forecast because U.S. natural gas storage levels have increased more than expected as winter approaches. This revision is unlikely to have much of an effect on retail natural gas prices this winter because there is typically a significant delay between changes in wholesale and retail prices for natural gas.