Report predicts gas will stay around $3.80 a gallon ... for now

By Thomas V. Bona

BusinessRockford.com

Gasoline prices could stay below $4 a gallon for the foreseeable future, but not much below, the U.S. Energy Information Administration said today.

In its monthly energy outlook, the agency said the national average should remain slightly less than $3.80 a gallon for the next few months before rising as high as $3.91 a gallon next summer. The national average fell below $3.80 a gallon today for the first time since May, according to AAA’s fuelgaugereport.com.

It’s the first time in months that the EIA has been optimistic on gas prices. In July, the agency predicted gas prices could stay “well above” $4 a gallon for the rest of the year and not drop below until fall 2009.

But crude oil prices fell from $145 a barrel on July 3 to about $113 per barrel today. Gas prices have dropped about 30 cents nationally and locally in the past month, according to AAA.

Diesel prices, now at $4.52 a gallon nationally and $4.37 a gallon in the Rockford area, could drop an additional 25 cents next month. The EIA projects national diesel prices to rise back to $4.41 a gallon next spring before falling to slightly more than $4 by the end of the year.

Prices have fallen mainly because of decreased demand domestically and slowing consumption worldwide, the EIA reported.

“Downward price pressures would increase if the economic slowdown proves deeper or longer than expected, and if higher prices lead to lower consumption and lower demand for OPEC crude than currently anticipated,” the report said.

But there’s the chance the drop in oil prices could be short-lived, the report warned. For the drop to maintain or even continue, global consumption needs to stay down and oil-producing countries have to keep supply up.

“Supply risks in Iraq, Nigeria, and Iran, as well as threats of hurricanes over the near term, continue to influence market expectations,” the report said. “In addition, OPEC production behavior that would lead to voluntary production cuts aimed at keeping inventories fairly tight would also limit downward price pressure.”

Staff writer Thomas V. Bona may be contacted at 815-987-1343 or tbona@rrstar.com.

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