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The slowing economy combined with high petroleum prices is expected to constrain growth in U.S. consumption of liquid fuels and other petroleum products to just 40,000 barrels per day (bbl/d) in 2008. After accounting for increased ethanol use, U.S. petroleum consumption falls by 90,000 bbl/d. U.S. real gross domestic product is expected to decline slightly in the first half of the year and then start growing again, with growth for 2008 as a whole at 1.3 percent, the slowest annual rate since 2001.
Tight fundamentals, reflected by low available crude oil surplus production capacity, combined with supply concerns in several oil exporting countries, have continued to put upward pressure on world crude oil prices. The outlook over the next 2 years points to some easing of the oil market balance due to increased production outside of the Organization of the Petroleum Exporting Countries (OPEC) and planned additions to OPEC capacity. However, delays to capacity additions in both OPEC and non-OPEC nations could alter the outlook, as could OPEC production decisions.
WTI averaged $95 per barrel in February and is expected to average $102 in March (the spot price of WTI closed at nearly $108 per barrel on March 10, 2008 but is expected to decrease over the second half of the month). The annual average WTI price, which was $72 per barrel in 2007, is projected to average $94 per barrel in 2008, but ease somewhat to about $86 per barrel in 2009.
The projected higher costs for crude oil in 2008 are likely to be passed on to all petroleum products. Retail prices for motor gasoline are expected to average $3.21 per gallon or 40 cents above the 2007 price. The monthly average gasoline price is projected to peak near $3.50 per gallon this spring. It is important to note, however, that even if the national average monthly gasoline price peaks near that level, there is a significant possibility that prices during some shorter time period, or in some region or sub-region, will cross the $4 per gallon threshold.
Diesel prices are projected to show larger gains in 2008, averaging $3.45 per gallon, or 57 cents above the 2007 average price. The monthly average gasoline price is projected to peak near $3.50 per gallon this spring, while diesel prices are expected average close to $3.70 per gallon for March and April.
The Henry Hub natural gas spot price averaged $7.17 per thousand cubic feet (Mcf) in 2007 and is expected to average $8.18 per Mcf in 2008 and $7.95 per Mcf in 2009.
