EIA: gasoline prices to continue decline; projected average is $2.63 in December

The Energy Information Administration on Sept. 11 released its Short-Term Energy Outlook.

Here are some highlights:

• Oil market fundamentals will likely remain tight reflecting continued production restraint by members of OPEC, rising consumption, moderate growth in non-OPEC supply, and falling inventories. Barring a slowdown in oil demand growth, continued high demand and low surplus capacity leave the market vulnerable to unexpected supply disruptions through 2008.
• The price of West Texas Intermediate (WTI) crude oil dropped by about $2 per barrel in August from the record-high monthly average price of over $74 per barrel set in July. Tight world oil markets are expected to keep WTI prices around $71 per barrel through 2008. WTI crude oil prices are projected to average $67 per barrel for 2007 and $71 per barrel in 2008, while the annual average refiner acquisition cost of crude oil is expected to increase from $64 per barrel in 2007 to nearly $69 per barrel in 2008
• This Outlook is conditioned on relatively strong world annualized economic growth of 3.5 percent (2.3 percent for the United States) over the 18 months beginning July 2007. To the extent that the recent turmoil in credit markets leads to markedly weaker world economic growth, energy demand would decline. Weaker energy demand would result in lower energy consumption, lower energy prices, or both, depending on the production responses of OPEC member countries.

In 2007, domestic crude oil production is projected to average 5.2 million bbl/d, up 0.3 percent from 2006 production levels. Domestic production is also projected to increase in 2008 by 4.1 percent, to an average of 5.4 million bbl/d. Contributing to the increases in output are the Atlantis deepwater platform, which is expected to come on-stream later this year, and the Thunderhorse platform, expected to come on-stream late in 2008.

Motor gasoline inventories throughout this summer were tight and are expected to remain so during the rest of the year. At the end of August, total gasoline inventories were about 191 million barrels, 19 million barrels below last year and 10 million barrels below the average of the previous 5 years. Measured in terms of days-of-supply, the 19.7 days of inventories available at the end of August represent a record low since the start of the data series in March 1991. Distillate inventories, which had held at relatively high levels since late 2005, fell to the middle of the normal band in June and are projected to remain near the previous 5-year average through this winter. However, if refiners produce more gasoline than expected over the next few months to rebuild the very low gasoline inventories, this could reduce the expected build in distillate inventories.

In 2007, the average refiner acquisition cost of crude oil is projected to be $64.21 per barrel compared to the $60.23 per barrel average in 2006. The main reason for the year-over-year increase - the tight world oil supply and demand balance - is expected to continue next year, with a projected average 2008 average cost of $68.66 per barrel. WTI prices, having averaged $66.02 per barrel in 2006, are projected to average $66.97 per barrel in 2007 and $71.17 in 2008.

Average retail regular motor gasoline prices for the 2007 summer driving season (April through September) are projected to be $2.93 per gallon, up 9 cents per gallon from last summer. Despite the continuing low gasoline inventories, gasoline prices are expected to continue to decline through the end of this year, with a projected average price of about $2.63 per gallon in December 2007.

The next Short-Term Energy Outlook is scheduled to be issued by the EIA on Oct. 9.