This Tuesday, the U.S. Energy Department reported that that there is a high probability that oil will remain at an average of $101 a barrel this year. This is a big revision on their January’s forecast.
EIA had forecasted $87-a-barrel oil in January, for 2008. The U.S. benchmark West Texas Intermediate for oil prices, traded on the New York Mercantile Exchange, and averaged $72.32 per barrel in 2007. Oil prices are predicted to average $101 per barrel in 2008. However, for 2009, oil prices are forecasted to reach an average of $92.50.
The US Energy Information Administration (EIA) unit of the Department of Energy, requests U.S transporters to utilize less fuel during 2008 as the economy dwindles. That could further reduce the prices for gasoline and other fuels. This will prove helpful in maintaining the price of gasoline at a U.S. average of $4 a gallon.
Petroleum product prices are bound to rise. This can be attributed to the higher costs of crude oil. Diesel prices are expected to increase for the year 2008, averaging $3.62 per gallon. This is 74 cents higher then the 2007 average price. The monthly average price for gasoline is expected to settle at about $3.60 per gallon this spring. While monthly diesel prices are forecasted to reach an average of almost $3.90 per gallon in March and April. Already there has been an increment in weekly diesel prices that has exceeded the $4.00 per gallon mark in numerous parts of the country.
Nationwide utilization of liquid fuels and the various other petroleum products is predicted to decline this year by approximately 85,000 barrels per day. This can be attributed to economic downturn and high petroleum prices. Due to increasing ethanol consumption, U.S. petroleum usage is predicted to fall by 210,000 barrels per day in 2008.
Just a year ago, it was impossible to exceed $100 a barrel mark. However, it is alarming that the price above $100 level has become the norm these days.
There was a 22 cents increase in Crude oil delivery for May as it reached $108.72 on the New York Mercantile Exchange, this Tuesday. Oil settled at a record high of $110.33 on March 13th.
According to EIA the global oil market stays in a strong position as the second quarter approaches. Even after a decline in U.S oil consumption and ever increasing threats to global economic growth. The accumulative effects of increased oil consumption on a worldwide basis and low surplus production capacity are proving to be the driving force behind high oil prices. The further investment of money into commodities has led to the crude oil price fluctuation.
The EIA suggests that the worldwide oil demand will skyrocket by 1.2 million barrels a day in 2008, even with a declining consumption by U.S. citizens.
The EIA further adds that inventories are increasing in the Organization for Economic Cooperation and Development (OECD) countries. However, large quantities of tradable inventories are required in countries like Nigeria, Venezuela and Iraq. Lack of additional capacity and global political concerns are just two of the compelling reasons why these countries should increase their inventories. The scope, breadth and time frame of any global economic downturn will definitely affect market conditions in short run. There will be increases in the OPEC surplus crude oil production capacity leading to reduction in spiraling prices by the end of this year. This can also be attributed to the OPEC’s production in the second half of the year.