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Economic Forecasts

Oil Price Rally Takes a Breather

Kiplinger's latest forecast on the direction of energy prices

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GDP 3.0% pace in '18, up from 2.3% in '17 More »
Jobs Unemployment rate down to 3.8% by end '18 More »
Interest rates 10-year T-notes at 3.3% by end '18 More »
Inflation 2.6% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $55 to $60 per barrel in April More »
Housing Existing-home sales up 1.6%, new-home sales up 9.8% in '18 More »
Retail sales Growing 4.6% in '18 (excluding gas) More »
Trade deficit Widening 5%-6% in '18 More »

The oil market’s rally appears to be over, at least for now. After zooming from about $45 per barrel late last summer to $66 per barrel in late January, benchmark West Texas Intermediate crude has pulled back to about $60 over the past two weeks. Much of that decline coincided with a sharp tumble in the stock market. But concerns that soaring U.S. crude production could create a new supply glut mostly caused oil’s woes.

American oil output has hit a new all-time high of 10.3 million barrels per day, according to the Energy Department’s latest weekly report. Production figures to keep climbing as energy companies put more rigs to work drilling new wells. The United States has already replaced Saudi Arabia as the world’s second-largest oil producer and will likely overtake Russia for the top spot later this year.

Via E-mail: Energy Alerts from Kiplinger

We look for WTI to trade between $55 and $60 per barrel in April, roughly in line with where it is now. But the market will no doubt remain volatile, with frequent short-term price spikes and dips. Strong economic growth in the United States and around the world will foster more oil demand and keep prices from sliding much. But steady supply increases in Texas, North Dakota and other oil-rich states will probably prevent sustained price gains, too.

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Motorists are seeing prices at the pump slip a bit — a welcome turnaround after weeks of steady increases. The national average price of regular unleaded gasoline dropped two and a half cents from a week ago to hit $2.58 per gallon. Expect the average price to decline by a few more pennies soon, thanks to oil’s drop. Diesel is largely unchanged from a week ago at about $2.99 per gallon and should hold fairly steady.

Natural gas prices have also tumbled lately on forecasts calling for warmer weather across much of the country. The benchmark gas futures contract was recently trading at $2.57 per million British thermal units (MMBtu), which is off sharply from two weeks ago, when colder weather drove up heating demand. If the rest of the winter ends up mild, it will be hard for gas prices to recover much. But a return of seasonable cold to the East and Midwest would likely push gas back to about $3 per MMBtu. Stockpiles of stored gas are quite low for this time of year. It wouldn’t take much extra demand to trigger concerns about supplies running short.

Source: Department of Energy, Price Statistics