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

August 11, 2004

EIA: Oil Prices to Stay Above $30 Per Barrel

With oil prices reaching about $45 per barrel in early August, prices are likely to remain above $30 per barrel for the foreseeable future, according to DOE's Energy Information Administration (EIA). The EIA's "Short-Term Energy Outlook," released on August 10th, blames rising oil consumption and a lack of surplus oil production capacity for the current volatility in oil prices. The EIA notes, however, that current world oil prices "may not entirely reflect pure economic fundamentals of the world oil supply market," as concerns about oil supply disruptions may have added a premium to what otherwise might be a lower world crude oil price. The good news for U.S. consumers, however, is that high gasoline inventories are helping to insulate gasoline prices from the volatile oil market. See the EIA's "Short-Term Energy Outlook."

The Organization of the Petroleum Exporting Countries (OPEC) essentially agrees with the EIA's assessment. OPEC increased its oil production ceiling in July and on August 1st, while it still holds some spare production capacity. But as noted by its president, Dr. Purnomo Yusgiantoro, in late July, "this is a challenging time in the oil market, with the unusual, powerful combination of forces that are currently dominating market activity and adversely affecting its equilibrium." See OPEC's press releases from July 22nd and August 4th.

While the EIA report focuses mainly on how low oil prices are likely to go in the near future, Cambridge Energy Research Associates (CERA) is anticipating how high prices are likely to go. According to an analysis released on August 10th by the energy consulting company, there's a 50 percent chance that oil could reach $50 per barrel within the next 50 days. However, a significant supply disruption would be needed to trigger the higher oil prices, according to CERA. See the CERA press release.

The latest trends in world oil prices can be checked at two online resources: the OPEC Daily Basket price, which averages the current price of seven crude oils, and the New York Mercantile Exchange (NYMEX), which posts oil price futures. The NYMEX futures price for next month is the usual benchmark for world oil prices. See the OPEC Daily Basket and the NYMEX oil futures.

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