-- Gasoline is expected to remain a relative bargain through 2009, with prices averaging $2.37 a gallon, and home heating costs will likely be flat this winter under sharply lower U.S. forecasts released Wednesday.
The brutal economy will push down total U.S. petroleum demand this year by 1.1 million barrels a day, or 5.4%, the first time since 1980 that total consumption is expected to fall by more than 1 million barrels a day.
"It's because of significant revisions downward in U.S. and world economic growth," says Tancred Lidderdale, senior economist for the Energy Information Administration, the Energy Department's research arm. "This is not something we've really been through before."
The EIA lowered its forecast for U.S. gross domestic product growth to 1.3% this year, and it now expects GDP to fall by 1.4% in 2009. It also raised its unemployment forecast for next year to 7.9% from 6.2%.
The $2.37-a-gallon estimate for regular gasoline in 2009 is $1.20 lower than EIA's forecast just last month because of lower oil consumption worldwide. Current average gas prices of $2.20 per gallon are a little over half the July 14 peak of $4.11. Global oil demand is expected to be virtually flat at 85.93 million barrels a day, as oil prices hover in the $60 to $65 range per barrel. Light, sweet crude for December delivery fell $3.14 Wednesday to $56.16.
"World demand growth may be negative for the first time in years, which is a shock to a lot of the bulls who never thought this could happen," says Phil Flynn, oil analyst at Alaron Trading.
The average household, meanwhile, will spend $1,004 on heating from October to March, just $14 more than last year. Last month, EIA projected heating costs would rise 15% to $1,137.
Heating oil customers will benefit most. Their costs will fall 13.3% to $1,694. Consumers who heat their homes with natural gas — about half of U.S. homes — will see total expenses rise 3.6% to $889. Natural gas prices have dropped by more than half since summer, but many providers bought higher-priced product that they put in storage.
People who rely on propane for heating will see costs fall 8.1% to $1,544, while those who use electricity will see expenses rise 9.5% to $943.
Long term, an oil-supply crunch looms. The International Energy Agency on Wednesday said about 30 million barrels a day of new capacity is needed by 2015 and cited a "real risk" that under-investment will cause a shortage.