The Energy Information Administration (EIA), a statistical agency of the U.S. Department of Energy, is predicting that the high price of oil and gasoline will continue through 2007. Released on July 11, the EIA’s Short-Term Energy Outlook projects that retail regular gasoline prices will average around $2.67 per gallon in 2006 and $2.60 per gallon in 2007. The cost of gasoline this summer is forecasted to average $2.88 per gallon, a 51-cent increase from last year. Retail diesel fuel is expected to be $2.86 per gallon this summer, a 45-cent increase. The agency also predicts that the price for a barrel of West Texas Intermediate crude oil will average $69 in both 2006 and 2007.
Gasoline and Crude Oil Prices
Several factors contribute to the continued elevated prices. One of these is the concern about oil supply problems in Iran, Iraq, Nigeria, Venezuela, and elsewhere. EIA also cites the tight supplydemand balance as being influential. In addition, the threat of severe hurricane damage affects gas and oil prices. Hurricane season began June 1 and lasts through the end of November. On May 22, the National Oceanic and Atmospheric Administration predicted an 80-percent chance of an above-normal hurricane season this year.
Despite the expense of gas and oil, EIA predicts that U.S. petroleum consumption will increase by 0.4 percent in 2006 and by 2.1 percent in 2007. U.S. motor gasoline consumption is expected to rise 0.7 percent in 2006 and 1.0 percent in 2007, reflecting anticipated economic growth and the stabilization of prices. Although world petroleum consumption slowed slightly, the report forecasts that it will grow by 1.6 million barrels per day in 2006 and 1.8 million in 2007.
The Short-Term Energy Outlook also covers the future of natural gas, projecting that total U.S. natural gas consumption will fall below 2005 levels by about 1.7 percent in 2006, and then increase by 4.2 percent in 2007. Due to a mild winter, residential consumption is projected to fall by 7.4 percent from 2005 levels and then increase by 8.8 percent in 2007. The Henry Hub spot price, the benchmark for future natural gas prices, is expected to average under $7.00 per thousand cubic feet (mcf) in 2006. In 2007, the Henry Hub average price is estimated to rise to an average of $8.13 per mcf.
Natural Gas Henry Hub Spot Prices
(Base Case and 95% Confidence Interval)