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Economic Forecasts

Gas Prices Up Slightly for Memorial Day Weekend

Kiplinger's latest forecast on the direction of energy prices

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Oil prices continue to hover near $50 per barrel, up slightly from last week. Suggestions by Saudi Arabia and Russia that the world’s major oil-exporting nations will continue to pump at reduced levels through early next year have nudged up the price of benchmark West Texas Intermediate. But the plan by OPEC and Russia to shrink global crude inventories and thus send prices higher, is unlikely to accomplish much.

U.S. oil production is rising steadily as energy companies ramp up drilling activity in Texas and other oil-rich states. Those additional barrels are mostly replacing the ones OPEC, Russia and other oil exporters agreed late last year to withhold. As a result, the glut of oil held in storage around the world isn’t declining enough to tighten the global oil market and push prices up significantly.

We expect WTI to continue trading near its current level of about $50 per barrel into the summer. If prices were to rise much higher, U.S. production would kick into an even higher gear. The resulting boost to domestic production would counteract OPEC’s cuts and pull oil prices back down.

Via E-mail: Energy Alerts from Kiplinger

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Drivers hitting the road this Memorial Day weekend can expect relatively low gasoline prices. The national average price of regular unleaded rose two cents from a week ago, to hit $2.36 per gallon. Figure on an average of about $2.40 for the holiday weekend. Diesel, now averaging $2.50 per gallon, is unlikely to move much, either up or down.

Natural gas prices are proving remarkably resilient, with the benchmark gas futures contract recently trading at $3.31 per million British thermal units (MMBtu). But prices are likely to pull back fairly soon. U.S. gas consumption is down from a year ago. Stockpiles of gas held in storage are above average for this time of year. And increased recent drilling should boost output later. That all points to more gas than the market needs. We look for gas prices to retreat toward $3 per MMBtu by late spring, unless a heat wave sparks heavy demand from gas-fired power plants.

Source: Department of Energy, Price Statistics