Energy Dept.: Gas Prices To Stay High

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Motorists can expect gasoline prices around $4 gallon through next year, the Energy Department said Wednesday, with oil prices staying well above $100 a barrel.

Crude oil prices are likely to average $126 a barrel in 2009, $4 higher than this year, as oil supplies and demand are expected to remain tight, Guy Caruso, head of the department's Energy Information Administration, told a House hearing.

Gasoline prices are likely to peak at $4.15 a gallon in August and won't go down much after that, the agency projected in a report. Gasoline was forecast to average $3.92 a gallon through 2009.

The agency said that the high price of gasoline has reduced expected demand for this summer, but not enough to dampen prices.

Caruso told House members that new auto fuel economy requirements and the increased use of ethanol and other alternative fuels are expected to produce "a substantial reduction" in oil use and oil imports over the next two decades.

Predicting future oil and gasoline prices is highly uncertain with the volatile global oil markets, Caruso acknowledged. The agency projects oil prices declining to $86 a barrel in 2010 and then increasing to $107 by 2015.

Overall U.S. oil consumption is expected decline over the next two decades because of the production of more fuel-efficient cars and the growing use of ethanol as a motor fuel, Caruso said. Both were required by Congress last December.

Crude prices, meanwhile, soared Wednesday well above Caruso's projections as his agency announced that U.S. oil inventories fell more than expected last week. Light, sweet crude for July delivery jumped $4.50 to nearly $136 a barrel on the New York Mercantile Exchange.

Light, sweet crude spiked up nearly $5.50 to $136.80 a barrel soon after the report's release, then retreated to trade up $3.06 at $134.37 a barrel on the New York Mercantile Exchange.

The dollar's travails again sent oil prices rising. The euro bought $1.5539, up from $1.5449 Tuesday. Oil prices have closely tracked dollar moves; prices rose sharply last week when the dollar fell, then retreated more than $7 earlier this week as the dollar gained ground.

"It's been hand in hand with what the dollar's been doing," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.






Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is the primary reason oil prices have doubled over the past year.

The EIA said oil inventories fell by 4.6 million barrels last week. Analysts surveyed by energy research firm Platts expected a much smaller decline of about 1.4 million barrels.

But other elements of the report were considered bearish for prices, and pulled oil off its earlier highs. Supplies of gasoline and distillate fuels such as diesel and heating oil both rose last week, and demand for gasoline fell by 1.3 percent.

Retail gas prices, meanwhile, rose to another record Wednesday, rising 0.9 cent overnight to a national average of $4.052, according to a survey of stations by AAA and the Oil Price Information Service. Prices continue rising, despite falling demand, because the price of oil keeps moving higher.

While oil prices have slipped some from last week's trading record of $139.12 a barrel, analysts say gas prices still have some catching up to do, and could rise another nickel or so. Of course, if oil futures blast past that record and reach new highs, gas prices will likely rise even higher.

Also supporting oil prices Wednesday was Royal Dutch Shell PLC's decision to extend force majeure on some Nigerian oil shipments, a legal declaration that means the company can't meet contractual obligations to supply some customers. The company first made the declaration following a militant attack in April.

CBS' The Early Show anchor Harry Smith spoke to Ray Carbone, an oil trader and broker at Paramount Options, about just who trades oil in financial markets and how much impact that activity has on the price of crude and, by extension, gas.

"We buy and sell oil. I trade options on the oil futures market. We're watching the price and all of the components that go into making that price up," Carbone said.
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