This is an excerpt from EERE Network News, a weekly electronic newsletter.

July 09, 2008

No Gasoline or Oil Price Relief Until Winter 2009, Says EIA

The average price of regular gasoline is expected to remain greater than $4 per gallon until the fourth quarter of 2009, according to DOE's Energy Information Administration (EIA). The EIA's "Short-Term Energy Outlook," released on July 8, notes that crude oil spot prices reached $145 per barrel on July 3, and crude oil prices are now projected to average $127 per barrel in 2008 and $133 per barrel in 2009. Despite the higher prices, world oil consumption continues to grow, while production increases have fallen short of expectations. Although Saudi Arabia plans to increase its production by 300,000 barrels per day in July, that move is also limiting the remaining surplus production capacity to about 1.2 million barrels per day, and that surplus capacity is all located in Saudi Arabia. To place these numbers in context, the world produced about 84.6 million barrels of oil per day in 2007. For the latest crude oil prices, see the New York Mercantile Exchange Web site.

With crude oil prices staying high, the EIA now projects that the average price for regular-grade gasoline will stay well above $4 per gallon for the rest of the year, causing the average for 2008 to end up at $3.84 per gallon, an increase of more than a dollar per gallon above last year's price. That trend will continue in 2009, with an average price of $4.06 per gallon for regular gasoline. Diesel fuel prices will also stay elevated, averaging $4.35 per gallon in 2008 and $4.48 per gallon in 2009. According to the American Automobile Association (AAA), regular gasoline and diesel fuel were at a record average prices of $4.108 and $4.807 per gallon, respectively, on July 8. See the latest prices from the AAA Daily Fuel Gauge Report.

While the nation is currently focused on the high price of motor fuels, by this winter the focus may well change to electricity and heating fuels. The EIA notes that the sustained high prices for petroleum, along with other factors, are pushing up the spot price of natural gas. The spot price is projected to average $11.86 per thousand cubic feet (Mcf) in 2008 and $11.62 per Mcf in 2009, a 65% increase over the $7.17 per Mcf average spot price in 2007. Utilities and gas distribution companies tend to sign long-term contracts for natural gas, so spot prices aren't necessarily reflected immediately in the prices paid by businesses and homeowners, but they do indicate the trend in prices. The trend is already apparent in the electricity market, where prices are projected to increase 5.2% in 2008 and 9.8% in 2009. See the EIA's "Short-Term Energy Outlook."

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