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Energy Agency Sees Oil Averaging $101 This Year

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THE WALL STREET JOURNAL: Energy Agency Sees Oil Averaging $101 This Year

Economy May Damp
Demand for Fuel,
Curb Gasoline Price
By NEIL KING JR.
April 9, 2008

Federal energy officials expect oil to average $101 a barrel this year, a sharp upward revision from its earlier forecast that suggests prices will remain above $100 for some time.

But the U.S. Energy Information Administration expects American drivers, truckers and airlines to use less fuel this year as the economy softens. That could take some pressure off prices for gasoline and other fuels, and could keep the price of gasoline under a U.S. average of $4 a gallon.

Just months ago, $100-a-barrel oil seemed an aberration — a price surge driven by speculators that would soon slip back to more reasonable levels. But the move by the agency — usually a price bear that had predicted $87-a-barrel oil in January — suggests $100 oil could be the new norm this year.The arm of the U.S. Energy Department also doesn’t anticipate much relief next year, when it sees prices averaging $92.50 a barrel.

Crude oil for May delivery fell 59 cents a barrel, or 0.5%, to $108.50 Tuesday on the New York Mercantile Exchange. Oil hit a record high of $110.33 March 13.

Contrary to warnings from many analysts, the agency believes gasoline prices will remain below $4 a gallon in the U.S. during the height of the summer driving season. The government sees gasoline prices peaking in June at $3.60, up from the national average of around $3.33 now. The U.S., consumer of nearly a quarter of the world’s daily crude production, is expected to use 85,000 barrels a day less this year in liquid fuels than in 2007, the agency said.

Still, the Energy Department warned that gas could surge above $4 a gallon this summer in some parts of the U.S. — a prediction that politicians from both parties in Washington immediately seized on to attack one another’s policies. Democrats called on the Bush administration to stop filling the country’s Strategic Petroleum Reserve, while Republicans chided Democrats for seeking to raise taxes on oil companies.

Separately, the chairman of the House Energy and Commerce Committee said his panel has begun an inquiry into high gasoline prices, including the impact on prices of low refinery-utilization rates. Speaking on the sidelines of a conference in Washington, Rep. John Dingell (D., Mich.), said his committee was probing the contribution of speculation to prices and refinery use. “We’re looking to see if there are some questionable practices going on in the industry,” he said.

A number of factors continue to push oil prices upward, with little relief seen until later this year. Oil demand continues to grow briskly in China, India and Russia, where fuel prices are heavily subsidized. In the Middle East, soaring energy needs and shortfalls in natural-gas supplies mean major exporters such as Saudi Arabia and the United Arab Emirates must use more oil at home. The EIA predicts that even with falling consumption in the U.S., oil demand world-wide will jump by 1.2 million barrels a day this year.

The oil market is all the more jittery because of so little spare capacity to tap in a crisis. The 13-member Organization of Petroleum Exporting Countries now has just over two million barrels a day in excess production capacity, almost all of it in Saudi Arabia. The world is consuming about 86 million barrels a day, with OPEC supplying more than a third.

Oil traders also point with alarm at signs of slumping output from non-OPEC countries such as Russia, Norway, Mexico and the United Kingdom. OPEC has resisted increasing output this year in the face of record prices and pressure from consuming states, arguing that fresh supplies from non-OPEC producers will cover most of the world’s increased needs.

The EIA is now saying it expects most non-OPEC growth to come onstream in the second half of the year. But predictions of similar successes in recent years have often failed to pan out. OPEC ministers, meanwhile, continue to point to growing stockpiles in the U.S. and most developed countries to argue there isn’t any need for increased production. OPEC ministers have met three times in the past five months, each time deciding that no action was warranted.

U.S. forecasters say extreme volatility will remain the order of the day for the rest of the year. “Any real or perceived disturbance to petroleum demand or supplies,” the EIA said in this month’s report, “can result in large price increases in a short period of time.”

Write to Neil King Jr. at [email protected]

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