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Energy Costs Not Expected To Ease

heating oil graphic
AP
World oil prices are expected to hover around $30 a barrel through the coming winter and natural gas prices will remain high, the Energy Department predicted Tuesday.

It said oil prices, now at just over $30 a barrel, will "remain firm ... primarily because of OPEC's decision to lower oil production quotas," ending chances for an end-of-year inventory buildup.

The Organization of Petroleum Exporting Countries last month surprised analysts by lowering output quotas by 900,000 barrels a day, or about 3.5 percent. The move quickly caused prices to jump about $5 a barrel to the $30 range.

The production cuts go into effect next month.

Even before the OPEC move, world oil stocks were tight, said the Energy Information Administration, the DOE's statistical agency, in its winter fuels outlook report released Tuesday.

But the agency said that heating fuel markets — both oil and natural gas — are approaching the winter with near-average inventory levels, and there should be little risk of price spikes during the heating season if the weather remains normal.

Natural gas inventories were approaching the needed 3 billion cubic feet that provides a comfortable margin as the winter heating season nears, said the EIA. But much of that gas was put into storage when prices were high, and the agency predicts winter prices for natural gas to be higher than past winters.

"Assuming normal weather, residential natural gas prices this heating season (October-March) are expected to be about 9 percent higher than last winter's average" at between $4.50 and $5 a thousand cubic feet on the wholesale markets, said the agency.

The cost of heating oil, used widely in the Northeast, is expected to average about $1.33 a gallon, about the same as last winter, the EIA said. The agency warned, however, that further increases in crude prices or unusually cold weather could cause heating prices to spike another 8 to 16 cents a gallon.

On other matters, the EIA report said:

    Gasoline prices have dropped about 16 cents a gallon since a price surge just before Labor Day and are expected to continue at current levels through the winter, averaging about $1.46 a gallon.
  • Iraq oil production was estimated at 1.7 million barrels a day, about 200 million barrels higher than in September. Iraq's prewar production was about 2.5 million barrels a day.
  • OPEC's production cuts are likely to fall short of the recently announced quota, with OPEC's 10 members, not including Iraq, expected to cut actual exports by 500,000 to 600,000 barrels beginning in November.
  • Non-OPEC production is expected to grow by 1.3 million barrels a day next year, most of the growth coming from Russia and the Caspian-area oil fields.
  • Global demand for oil is projected to grow by about 1 million barrels a day next year.
  • U.S. petroleum demand is projected to grow by about 2.1 percent to an average of 20.3 million barrels a day next year. Average domestic oil production will remain flat.

By H. Josef Hebert