Changing oil market dynamics appear set to reduce the wide price differential between Brent crude oil and WTI that developed within the past few years, the Energy Information Administration said in its latest Short-Term Energy and Summer Fuels Outlook. These global benchmark crude oil grades are also expected to generally decrease in price from the averages seen last year, while US natural gas prices move well above the historic lows recorded last April.

“EIA expects that the Brent crude oil spot price, which averaged $112 per barrel in 2012 and rose to $119 per barrel in early February 2013, will average $108 per barrel in 2013 and $101 per barrel in 2014. The projected discount of West Texas Intermediate (WTI) crude oil to Brent, which increased to a monthly average of more than $20 per barrel in February 2013, is forecast to average $14 per barrel in 2013 and $9 per barrel in 2014, as planned new pipeline capacity lowers the cost of moving mid‐continent crude oil to the Gulf Coast refining centers,” the EIA said in the report.

Banking giant Barclays also recently cut their average 2013 Brent crude price from $125/bbl to $112 and WTI from $108/bbl to $95, as reported by Middle East Economic Survey.

US natural gas prices recently broke above $4 per million Btu threshold due to inventories, weather and other factors and the EIA sees prices strengthening over the medium term. “Natural gas working inventories ended March 2013 at an estimated 1.69 trillion cubic feet (Tcf), about 0.79 Tcf below the level at the same time a year ago and 0.41 Tcf below the five-year average (2008‐12). EIA expects the Henry Hub natural gas spot price, which averaged $2.75 per million British thermal units (MMBtu) in 2012, will average $3.52 per MMBtu in 2013 and $3.60 per MMBtu in 2014.”

As the price of gas increases, coal once again becomes competitive and utilities that substituted coal for gas last year may not do so to the same extent during this summer’s high power demand air conditioning season, the EIA pointed out. This could also have implications for US greenhouse gas emissions, which declined last year as cleaner burning gas was switched in for coal.

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