Higher crude oil prices directly translate into increases at the pump. The EIA projects that regular-grade gasoline will climb from the documented average of $2.78 per gallon in 2010 to $3.17 in 2011 and hit $3.29 per gallon by the end of 2012. Likewise, the cost of diesel fuel is estimated to soar from the recorded $2.99 per gallon in 2010 to $3.52 in 2012. Adding to the pain at the pump, the EIA predicts that there's at least a seven percent chance that the retail price of gasoline could, once again, exceed the $4 mark at some point this July.
[Source: U.S. Department of Energy | Image: Kari_Marie – C.C. License 2.0]
Crude oil prices are projected to steadily increase over the next two years and will average $99 per barrel in the fourth quarter of 2012, according to DOE's Energy Information Administration (EIA). The EIA's "Short-Term Energy Outlook," released on January 11, projects a continued tightening of world oil markets over the next two years, with consumption growing by an annual average of 1.5 million barrels per day. At the same time growth in supply from countries that are not members of the Organization of Petroleum Exporting Countries (OPEC) will average less than 0.1 million barrels per day each year. The EIA expects oil markets to rely on OPEC production increases and to draw down inventories to fill the demand gap. As a result, crude oil is expected to average $93 per barrel in 2011 and $98 per barrel in 2012, although these figures depend heavily on the rate of economic growth and on the magnitude of OPEC production increases. Crude oil spot prices averaged more than $89 per barrel in December 2010, about $5 per barrel higher than the November average.
In the United States, the primary impact of increasing crude oil prices will be on the price of motor fuels. The EIA expects retail prices for regular-grade gasoline to rise from an average of $2.78 per gallon in 2010 to $3.17 per gallon in 2011 and $3.29 per gallon in 2012. Likewise, retail prices for on-highway diesel fuel will rise from $2.99 per gallon in 2010 to $3.40 per gallon in 2011 and $3.52 per gallon in 2012. But because of increased demand, summer prices tend to rise above the average, so the EIA is anticipating that this year's peak monthly average price for gasoline will be reached in July, when it is projected to crest at $3.27 per gallon. However, the EIA estimates a 7% chance that the retail price of gasoline will exceed $4 per gallon in July. And although an increased consumption of motor fuels will increase carbon dioxide emissions, projected declines in fossil-fuel consumption for generating electricity are expected to cause energy-related carbon dioxide emissions to decline by 0.6% in 2011. In 2012, projected economic growth will cause a 2.4% increase in energy-related carbon dioxide emissions. See the EIA's "Short-Term Energy Outlook."
The International Energy Agency (IEA) confirms in its latest Oil Market Report that oil markets are indeed following the trends noted by the EIA, namely, that higher oil demand is being met with a drawdown of inventories and greater production from OPEC countries. The IEA notes that OPEC oil production increased by 250,000 barrels per day in December 2010, reaching 29.58 million barrels per day, while inventories in developed countries (those belonging to the Organisation for Economic Co-operation and Development, or OECD) dropped by 8.3 million barrels in November 2010, reaching 2,742 million barrels. See the highlights from the report on the IEA's Oil Market Report Web site.