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Economic Forecasts

Oil Prices Level Off

Kiplinger's latest forecast on the direction of energy prices


GDP 1.4% growth for the year; a 2% pace in '17 More »
Jobs Hiring at 150K-200K/month through '16 More »
Interest rates 10-year T-notes at 1.9% by end '17 More »
Inflation 1.8% for '16, 2.4% in '17 More »
Business spending Flat in '16, slight gain in '17 More »
Energy Crude oil trading from $40 to $45 per barrel in Dec. More »
Housing Prices up 5% in '16, 6% in '17 nationally More »
Retail sales Growing 3.4% in '16 and '17 (excluding gas) More »
Trade deficit Widening 4% in '16 More »

Last week’s oil rally has hit a speed bump. After climbing from about $40 to around $50 per barrel this autumn, benchmark West Texas Intermediate crude ended up largely unchanged this week. Traders still seem confident that OPEC’s recently announced plan to cut oil production will give prices a boost. But we aren’t so sure.

For one thing, OPEC won’t meet and draw up a formal production quota for another six weeks. That provides plenty of time for the group’s informal agreement to unravel. Several member countries are hard at work right now trying to increase production, and the cartel’s collective output hit a record high last month. The world is indeed oversupplied with crude right now, so an output cut makes sense. But how many OPEC members will actually stick to such a plan at a time when all of them are pumping as fast as possible?

See Also: All Our Economic Outlooks

Meanwhile, U.S. oil producers are putting drilling rigs back to work now that prices have risen from late summer. According to Baker Hughes, an oilfield services provider, the number of rigs actively pursuing oil is up by about one-third since the rig count bottomed out in late May. If that trend continues, U.S. oil production will eventually start rising again, compounding the worldwide supply problem. We very much doubt that OPEC will stick to a production cut if U.S. producers end up replacing those barrels. Thus, we expect WTI to retreat to a range of $40 to $45 per barrel this December.


Gasoline prices have paused after a strong early-fall run-up. We look for them to rise a bit more before easing later this season. The national average price of regular unleaded is unchanged from a week ago at $2.25 per gallon. We expect the average to creep up to $2.30 or so and then drift toward $2 per gallon as the year wanes. Diesel is starting to move higher, with the national average up a few pennies this week at $2.42 per gallon. If cold weather arrives soon and lifts demand for heating oil, chemically similar diesel fuel would also get a lift.

Natural gas is rallying as traders bet that stockpiles won’t grow as much this fall as previously expected. At $3.28 per million British thermal units (MMBtu), the benchmark gas futures contract gained again this week, extending its run-up from late summer. Gas held in storage is ample, but the approach of the heating season means stockpiles will stop growing fairly soon. An especially cold winter would probably give prices a further boost. It now appears unlikely that gas futures will slip below $3 per MMBtu unless very mild weather prevails. Assuming weather that’s neither unusually hot nor cold, we look for gas to trade from $3 to $3.25 per MMBtu this fall and then move a bit higher into winter.

Via E-mail: Energy Alerts from Kiplinger

Source: Department of Energy, Price Statistics