# Presentation: 709350

## Short-Term Energy Forecasting

- A Presentation to the Bangladesh Ministry of Energy and Natural Resources
- September 20 - 23, 1999
- Tancred C. Lidderdale
- Energy Information Administration
- U.S. Department of Energy

## Forecasting Energy Prices

## International Crude Oil Prices

**Average 1997 Crude Oil Import Costs, CIF**
**US Dollars per barrel**

**Source: International Energy Agency**

## Spot Crude Oil Prices

**www.platts.com**

## Crude Oil Price Formulas

**www.energyintel.com**

## U.S. Imported Crude Oil Price

## OPEC Compliance with Rate Cuts

## Long Term Crude Oil Price Outlook

- Less than 1% increase in real world oil price.
- Rate of increase declines after 2005.

**Real World Oil Prices, 1970-2020**
**(1997 US dollars)**

- Source: EIA, *Annual Energy Outlook 1999*,

## Retail Gasoline Price Impacts

**1.0**

**1.1**

**1.2**

**1.3**

**1.4**

**1.5**

**1.6**

**01/95**

**07/95**

**01/96**

**07/96**

**01/97**

**07/97**

**01/98**

**07/98**

**04/95**

**10/95**

**04/96**

**10/96**

**04/97**

**10/97**

**04/98**

**10/98**

**Dollars per Gallon**

**Base**

**10% Higher Oil Price**

## Crude Oil Price Forecasts

**Solid line - historical crude oil price**
**Dashed lines - Forecasts published during**
**                         ****1st quarter of each year**

**U.S. Refiners’ Average Imported Oil Acquisition Cost**

## Price Volatility

## Assume Crude Oil Volatility is 33.3%
Assume Current Price is $15 / barrel

Then, We Expect for 2/3 of Next Year:
Oil will fluctuate between $10 and $20 per barrel
$15 - 0.333 ($15) = $10
$15 + 0.333 ($15) = $20

- Assume Current Price is $15 / barrel
- Then, We Expect for 2/3 of Next Year:
- Oil will fluctuate between $10 and $20 per barrel
- $15 - 0.333 ($15) = $10
- $15 + 0.333 ($15) = $20

**Volatility Example**

**Notes:**
Volatility is not particularly useful for making price forecasts. Measures of price volatility are useful, however, for comparing price risk across commodity markets and over time.

## Price Volatility1998 NYMEX Crude Oil Futures

**Price Volatility****1998 NYMEX Crude Oil Futures**

**Notes:**
As expected, the volatility of futures prices declines the farther out the contract. This observed relationship for 1998 NYMEX WTI crude oil contracts also holds for other years, and also NYMEX natural gas contracts and IPE Brent crude contracts.

Increases in spot price volatility are reflected in increases in the volatility of futures prices. In general, volatility of prices 8 months forward is about 1/2 of spot price price volatility. Higher volatility in spot and futures prices is usually associated with sustained increases or declines in the price level rather than in larger random price fluctuations.

## Price VolatilityCrude Oil and Petroleum Products

**Price Volatility****Crude Oil and Petroleum Products**

**Notes:**
The price volatility of petroleum products are closely tied to the price volatility of crude oil.  Residual fuel oil and bunker fuel price volatility may also be influenced by natural gas prices and weather because of electric utility demand for No. 6 oil.

Data Sources:
 Crude - WTI Midland spot price, 8/11/93 - 9/2/98 (Reuters)
 Unl Gasoline USG - Unleaded regular prompt U.S. Gulf Coast, 1/1/93 - 9/2/98 (Reuters)
 Bunker 180 CST USG - Houston U.S. Gulf spot price, 4/30/93 - 8/28/98 (Reuters)

## Price VolatilityCrude Oil and Natural Gas

**Natural Gas**

**WTI Midland**

**Price Volatility****Crude Oil and Natural Gas**

**Notes:**
The price of natural gas has been significantly more volatile than the price of crude oil. But, this may be due to greater seasonality in natural gas prices, which has not been corrected for.

Data Sources:
 Crude - WTI Midland Spot Price, 8/11/93 - 9/2/98 (Reuters)
 Natural Gas - 1st nearby futures, New York Mercantile Exchange, 1/13/94 - 9/2/98 (Reuters)

## Price VolatilityCrude Oil and Grains

**Price Volatility****Crude Oil and Grains**

**Notes:**
Data Sources:
 Crude, Light Sweet - 1st nearby futures, New York Mercantile Exchange (DRI)
 Corn, No, 2 Yellow, 2nd nearby futures, Chicago Board of Trade -  (DRI)
 Wheat, 2nd nearby futures, Chicago Board of Trade -  (DRI)

## Price VolatilityCrude Oil and Metals

**Price Volatility****Crude Oil and Metals**

**Notes:**
Data Sources:
 Crude, Light Sweet - 1st nearby futures, New York Mercantile Exchange (DRI)
 Gold, Bar, 2nd nearby futures, Commodity Exchange (DRI)
 Silver, 1,000 oz., 2nd nearby futures, Chicago Board of Trade (DRI)

## Price VolatilityCrude Oil and Financials

**Price Volatility****Crude Oil and Financials**

**Notes:**
Data Sources:
 Crude, Light Sweet - 1st nearby futures, New York Mercantile Exchange (DRI)
 T-Bonds, 15-year, 2nd nearby futures, Chicago Board of Trade (DRI)
  S&P 500 Stock Index, 2nd nearby futures, Chicago Mercantile Exchange (DRI)

## Price VolatilityCrude Oil and World Commodities

**Price Volatility****Crude Oil and World Commodities**

**Notes:**
Data Sources:
 Crude, Light Sweet - 1st nearby futures, New York Mercantile Exchange (DRI)
 Coffee, Arabica, 2 nearby futures, Coffee, Sugar, Cocoa Exchange (DRI)
 Sugar, Raw No. 14 Domestic , 2 nearby futures, Coffee, Sugar, Cocoa Exchange (DRI)