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Energy Prices Likely to Continue Moderate Rise

Latest News > Industry News

The prices Americans and most of the world pay for energy from petroleum, natural gas, electricity and coal are expected to rise moderately through 2008, according to the latest Short Term Energy Outlook from the Energy Information Administration (EIA) of the U.S. Department of Energy (DOE).

Petroleum prices are the result of a complex mix of production from OPEC, non-OPEC and domestic sources, world consumption, current and projected inventory levels. These factors can move independently of one another and frequently in different directions.

For instance, continued production restraint by OPEC members, moderate increases in non-OPEC supply and rising consumption are keeping oil prices firm, EIA reports. The global oil balance has tightened since the EIA's spring report due to lower projections for world oil production and larger projected draws on inventory.

Projections for next year also point to a tight market, with higher consumption growth in 2008, moderate growth in supply and limited production capacity. Inventories are expected to be at the low end of their five-year range by year-end and remain there for the rest of the forecast period. All this leaves the market vulnerable to unexpected supply disruptions, EIA says.

U.S Gasoline Prices
In the U.S., the average monthly price of crude oil is expected to peak this month, then ease slightly. This summer's average retail price for motor gasoline is projected to be $2.95 per gallon, up 11 cents per gallon over last year, however prices are expected to moderate through the remainder of the year. The average for regular gasoline in December is expected to be $2.64 per gallon versus the $3.15 a gallon it was in May of 2007.

Home Heating Oil
Retail home heating oil prices are projected to average $2.85 per gallon during the coming heating season, EIA says, thanks to a predicted colder winter, rising crude oil prices and lower inventories. This compares to $2,48 last season.

Natural Gas
Mild summer weather in the West South Central U.S., a so-far inactive hurricane season in the Gulf of Mexico and higher inventory levels have pushed the spot price of natural gas down for three consecutive months (May through July). But price projections remain vulnerable to weather events, EIA points out. For the year, the spot price is expected to average some $7.45 per mcf this year, increasing to $8.06 per mcf in 2008.

The EIA expects U.S. residential electricity prices to rise by 2.6% this year and 2.9% in 2008. Rate caps in Illinois expired earlier this year, which is expected to drive prices upward, while rates in the Mid-Atlantic are expected to rise at a faster-than-normal rate, especially for the industrial sector, EIA forecasts.

Projected growth in electricity consumption will raise electric-power sector coal consumption by some 1% this year and remain flat in 2008. Domestic coal production is expected to decline slightly both this year and next.