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The Wall Street Journal: U.S. Forecaster Sees Further Jump In Gasoline Prices

By JOHN J. FIALKA
November 13, 2007; Page A2

The U.S. Department of Energy’s top forecaster expects gasoline prices to climb an additional 20 cents a gallon by December and said prices could go still higher if OPEC doesn’t increase production.

The estimate came as mixed signals on the intentions of the Organization of Petroleum Exporting Countries contributed to a drop in oil prices on futures markets. The drop, coming after several weeks of new oil-price highs, signals increasing volatility in oil markets as the price has approached $100 a barrel.

Yesterday, the national average retail price for a gallon of regular gasoline was $3.10, according to the AAA, formerly the American Automobile Association. Guy Caruso, who heads the department’s Energy Information Administration, said the price of gasoline will continue to rise even if crude oil prices don’t because the past jump in crude prices hasn’t been fully passed on to gasoline consumers by oil refiners.

He also said he expects crude oil prices to remain high through the first three months of 2008, and warned that supplies coming onto the market after that will be more costly because of “dramatic increases in the cost of doing business” for oil companies.

Mr. Caruso said speculators may have helped push the price rise, but he said their impact “is really a symptom of market fundamentals” because demand for oil remains high.

Oil futures fell $1.70, or 1.8%, to $94.62 per barrel yesterday on the New York Mercantile Exchange after a person familiar with the matter told Dow Jones Newswires that Saudi Arabia may push for an extra 500,000 barrels-a-day supply rise as soon as this week if oil prices drive toward $100 a barrel. Saudi Arabia, the world’s largest oil producer, is OPEC’s de facto leader because it is the only member of the cartel with significant excess capacity to add to world supplies.

Saudi Arabia’s oil minister, Ali Naimi, later yesterday threw cold water on the possibility, saying output would be discussed at a scheduled OPEC meeting in Abu Dhabi next month but not at a gathering of cartel leaders in the kingdom this week. He said oil inventory levels remain comfortable and talk of shortages in the market are overplayed.

Mr. Caruso said the weakness of the U.S. dollar has helped to fuel continued high demand for oil in other countries. The impact of higher fuel prices hasn’t been felt as sharply in Europe and Japan, where currencies have increased in value along with the price of oil. In other countries, such as China, demand continues to rise because the government has been cushioning consumers by subsidizing retail prices.

He said his agency predicts crude oil will drop to $80 a barrel later next year, assuming OPEC increases supplies. He said DOE expects that nations that don’t belong to the price-setting cartel, such as Brazil, Russia, Azerbaijan and Canada, will increase their production next year.

–Adam Smallman and Spencer Swartz contributed to this article.

Write to John J. Fialka at [email protected]

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