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Hope for a U.S. recovery lies in easing oil prices, which began falling this year and will continue declining in 2009. Of course, we don't expect a return to $75 a barrel crude oil or gasoline prices below $3 a gallon at the pump. But look for oil prices to settle at about $110 a barrel by year-end and average at or near the $100 mark in 2009 with enough ups and downs to keep investors and executives ingesting some Maalox.
The speculative froth that whipped oil prices up to nearly $150 a barrel in July has subsided, and a cushion of supplies versus energy usage will grow modestly next year. But a surplus of 1.5 million barrels a day or so will not yet be wide enough to quell concerns that a major unexpected disruption could trigger a sudden price uptick.
"To make a compelling case for oil priced well below $100, the Nigerian situation [with sporadic rebel attacks on oil facilities shuttering production] has to be resolved, as well as the standoff with Iran over its nuclear program," says John Kilduff, a senior vice president with MFGlobal, a commodities trading firm.
Foreign oil producers also have to be confident that the dollar will keep strengthening, Kilduff says, noting that the dollar's anemic value during the first half of this year helped buoy crude oil prices. Since those transactions are dollar-denominated regardless of the buyer or the seller's home currency, the dollar's value can impact oil prices.
Tepid economic growth in the U.S. and Western Europe will temper motor fuel demand, prompting pump prices to ease a tad, as well, in 2009. But as is true of falling oil prices, there likely will be a slow whittling away rather than a fall-off-the-table drop in motor fuel prices.
Look for gasoline prices to drop roughly 25 cents a gallon from the current price level of around $3.70 per gallon by December to about $3.45. In 2009, we see a further decline and an average for the year of approximately $3.40, 25 cents less than the average of $3.65 in 2008. Supply and demand still will hold sway, which means motorists could see pump prices swell to $3.75 a gallon or more during the peak travel season bookended by Memorial Day and Labor Day.
Truckers and motorists who use diesel fuel will see modest price relief. A gallon of diesel fuel will decline about 20 cents to $4.10 a gallon by year's end. It's unlikely below-$4 prices will be posted anytime soon. The 2009 average should run near $4.15 a gallon, 15 cents below this year. The summer drive time premium could see diesel fuel prices climb about $4.50 a gallon.
Prices for propane gas used by industry and to heat homes will climb about 10 cents a gallon to $2.75 a gallon by year-end at the retail level and hold there through early February. Prices then will dip and spurt higher, yielding an average of about $2.70 a gallon, a dime more than this year.
It'll take longer for users of heating oil to enjoy any downward movement. Retail customers will have to pony up about $4.50 a gallon by December. Next year, however, the average for the year will be around $3.90, just 15 cents a gallon or so lower than in 2008.
Natural gas prices will head lower in 2009 after spiking by this year's end. Prices will rise from the current $8.30 per million British thermal units (MMBtu) to $9.25 or so by December, but in 2009, look for prices to average about $8.75 per MMBtu, down 75 cents from this year.
Because of the sharply higher natural gas costs this year, retail electricity prices are set for an upward spiral in 2009, some of which will be passed along to consumers. Prices will generally hold at about 11.4 cents per kilowatt hour (kWh) through year-end, but should average 12.4 cents per kWh in 2009, up one cent from this year.
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POSTED BY: Juan (September 03, 2008 02:43 AM)
I wonder the same thing at times. Where the heck do these people pull these forecasts from? It is a commodity and they project futures from a slew of different things. I think of it as forecasting weather. They are almost right most of the time, but subject to change according to market conditions. I'm just a novice investor, so take what I write with a grain of salt.
POSTED BY: Jim Ostroff (September 03, 2008 06:59 PM)
This is Jim Ostroff, author of this forecast. Our energy forecasts are based on reporting by editors who talk with a wide variety of sources, including independent analysts, consultants, traders, energy company executives, Wall Street analysts, government energy officials and academics. We accord sources the option to talk off-the-record in order that they can speak frankly and not be bound by the company or political party line. Unlike bloggers, columnists, or editorial writers, Kiplinger never takes sides on any issue, nor seeks to influence policy or prices. Our only goal is to provide unbiased information and forecasts that are of value to consumers and businesses. We stand by our forecast.
POSTED BY: Ken (September 05, 2008 01:57 PM)
You are unbiased, and that is why I faithfully read your articles every week. Unbiased reporting is such a breath of fresh air. I hope it never changes!
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