Federal government revises fuel price outlook upward

The U.S. Department of Energy’s updated long-term forecast predicts crude oil prices more than $20 per barrel higher and gasoline prices more than 50 cents per gallon higher than its previous forecast a year ago. Lower diesel prices are expected during the next six years, however.

The preliminary Annual Energy Outlook 2006, published Dec. 12 by the Energy Information Administration, predicts crude oil prices will fall from current levels to about $47 per barrel (in 2004 dollars) in 2014, then rise to $54 per barrel in 2025 and $57 per barrel in 2030. The reason: Demand is outpacing supply.

“There is now demand in China, Asia and India, and the demand there is growing,” said Denton Cinquegrana, markets editor for the Oil Price Information Service. “This should keep oil prices relatively high, but like any other market there are boom-and-bust cycles, and right now we are in the middle of a tremendous boom cycle.”

Chris Lee of ProMiles, a company that supplies daily fuel price averages by state, suggested a grain of salt may be in order. “I am skeptical at best on long-range forecasts because they can be affected by so many unknown factors,” he said.

The DOE estimate may indeed be exaggerated, Cinquegrana said. Oil prices could drop if more supplies are found or new technologies are invented that make it easier to pull hard-to-reach oil out of the ground. Price increases, too, will make some hard-to-reach oil more profitable and more likely to be extracted.

“In the long run, all of these things will pull the price of oil down,” Cinquegrana said.

The Annual Energy Outlook 2006 also predicts greater crude oil production and an increased demand for ethanol and biodiesel.

The projected prices for a gallon of on-highway diesel fuel (in 2004 dollars), including state and federal taxes but not local and county taxes, are as follows:

  • $2.357 in 2006
  • $2.103 in 2007
  • $2.067 in 2008
  • $2.007 in 2009
  • $1.959 in 2010
  • $1.991 in 2011
  • $1.977 in 2012

The full Annual Energy Outlook 2006 will be released early in the new year, along with regional projections and a report on the major assumptions underlying the projections.
— Lance Orr