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Economic Forecasts

Oil Prices Tank Despite OPEC Cuts

Kiplinger's latest forecast on the direction of energy prices

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There’s still no immediate recovery in sight for oil prices in the wake of last week’s sudden price drop. Benchmark West Texas Intermediate was recently trading at $48 per barrel, little changed from a week ago and down significantly from the $53 per barrel that WTI had been selling for during most of the winter.

OPEC has been cutting back production to curb the global glut of crude held in storage tanks. But even as countries such as Saudi Arabia dial back their output, U.S. energy firms are ramping up. New wells being drilled from Texas to Colorado are adding extra oil to the market, thereby reducing the impact of OPEC’s cuts.

Via E-mail: Energy Alerts from Kiplinger

We see oil prices gradually rebounding this spring, with WTI trading from $55 to $60 per barrel in May. But in the near term, prices could slip a bit further. At the moment, many oil refineries are undergoing scheduled maintenance and are not processing as much crude as normal. As spring nears, those refineries will get back up to full speed to churn out enough gasoline to meet the needs of spring and summer vacationers. When that happens, the stronger demand for oil should push prices higher.

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Prices at the pump remain tame and could slip a bit more. The national average price of regular unleaded gasoline fell a penny this week to $2.29 per gallon. Odds are, the average price will dip a few cents more before starting to rise as warm weather arrives and more folks hit the roads. Diesel, now averaging $2.51 per gallon, probably won’t move much, either up or down.

Natural gas prices are hanging on to their recent gains, with the benchmark gas futures contract trading at $3.03 per million British thermal units (MMBtu). Chilly March weather has driven up heating demand and pushed gas prices higher. But with winter on the way out, gas usage is likely to drop soon. And when it does, look for gas prices to retreat toward $2.75 per MMBtu.

Source: Department of Energy, Price Statistics