EIA projects summer regular average of $3.66

The Energy Information Administration (EIA) projects regular-grade motor gasoline retail prices, which averaged $2.81 per gallon in 2007, to average $3.52 per gallon this year, according to its May 6 Short-Term Energy Outlook. That is up 16 cents from the projection in last month’s Outlook .

The motor gasoline price is expected to average $3.66 over this summer (April through September).

The projections reflect EIA’s assumption of a sizable narrowing of refiner gasoline margins from last year, attributable to weakness in gasoline demand and growth in ethanol supply.

In 2009, regular-grade gasoline retail prices are projected to average $3.44 per gallon, 20 cents higher than in the previous Outlook .

Diesel fuel retail prices in 2008 are projected to average $3.94 per gallon, up from $2.88 per gallon last year. This reflects global strength in diesel demand that is contributing to a widening of the margin between diesel prices and crude oil costs since last year, the Outlook noted. Retail diesel prices are projected to average $3.67 per gallon in 2009.

Total petroleum consumption of liquid fuels and other petroleum products in the U.S. averaged 20.7 million bbl/d in 2007, essentially unchanged from 2006. Based on projections of weak economic growth and record high crude oil and product prices, consumption is projected to decline by 190,000 bbl/d in 2008, a sharper drop than the 90,000 bbl/d decline projected in the previous Outlook.  After accounting for projected increases in ethanol use, U.S. petroleum consumption is projected to fall by 330,000 bbl/d.  In 2009, total petroleum and other liquid fuel consumption is projected to rise by 210,000 bbl/d. 

WTI crude oil prices, which averaged $72.32 per barrel in 2007, are projected to average $110 per barrel in 2008, up about $9 per barrel from the projection in last month’s Outlook , and $103 per barrel in 2009, up about $11 per barrel from the previous Outlook .  

In a section of the Outlook addressing the global petroleum market, EIA reported that the oil supply system continues to operate at near capacity and remains vulnerable to both actual and perceived supply disruptions.  The supply and demand balance for the remainder of the year is tighter than in last month’s Outlook .  World oil markets are particularly tight during the first half of 2008, with year-over-year growth in world oil consumption outstripping growth in non-Organization of the Petroleum Exporting Countries (OPEC) production by over 1 million bbl/d.  The combination of rising global demand, fairly normal seasonal inventory patterns, slow gains in non-OPEC supply, and low levels of available surplus production capacity is providing firm support for prices.

The flow of investment money into commodities markets and ongoing geopolitical concerns in a number of producing countries, including Nigeria, Iraq, and Venezuela, have contributed to crude oil price volatility.

The Outlook observed that OPEC appears satisfied with current market conditions, given recent statements by some members, suggesting that there are no plans to review OPEC production until the next scheduled meeting on Sept. 9.  Also weighing on market expectations is a public statement by the Saudi oil minister suggesting no need to add production capacity beyond the announced plan to expand Saudi oil production capacity to 12.5 million bbl/d by 2009.

If non-OPEC production rises as expected and some OPEC members add production capacity as planned, surplus crude oil production capacity should increase and ease upward price pressures by early next year.  The expected surplus capacity, however, is less than projected in last month’s Outlook .

For the complete May 6 edition of the Outlook, visit the EIA Web site at eia.doe.gov and click on “Short-Term Energy Outlook,” under “Forecasts” on the right side of the page.