Heating-cost forecasts drop again as demand set to fall

WASHINGTON -- The government has further lowered its projections for winter heating costs because of the dramatic drop in crude oil demand and prices.

World oil consumption is projected to fall 50,000 barrels per day in 2008 and 450,000 barrels per day next year, the U.S. Energy Information Administration said in its monthly forecast released on Tuesday.

It would be the first time in three decades that global oil demand would fall for two years in a row.

The lower forecast came as the EIA revised down its projection for 2009 global GDP growth to 0.5% next year, from 2.7% in 2008. Last month, the EIA forecast 2009 GDP growth of 1.8%.

The last time annual world petroleum demand fell was in 1983, according to EIA data.

The plunge in demand will keep crude oil prices in check through 2009, the report said.

Crude oil prices are expected to average $51 a barrel next year, nearly a third of the cost when oil peaked at $147 a barrel last summer. Oil prices are likely to remain relatively low despite production declines. Prices hovered at just over $43 a barrel Tuesday on the New York Mercantile Exchange.

The EIA said the Organization of Petroleum Exporting Countries is likely to pump 1.6 million fewer barrels a day in 2009 than it did this year, but that the decline will be partially offset by an expected increase of 410,000 barrels a day by non-OPEC producers.

OPEC countries are scheduled to meet Dec. 17 to decide on future production targets.

The report confirmed that because of the economic slowdown — and high prices during much of the year — Americans are using less oil. It forecast U.S. petroleum consumption would drop 5.8% to 1.2 million barrels a day in 2008 to 19.5 million barrels a day in 2007.

That has had an impact on retail energy prices, the EIA report showed.

The EIA projects gasoline costs would average $2.03 a gallon next year, and diesel $2.47 a gallon. The price of both gasoline and diesel has dropped about $2 a gallon since mid-July to a national average this week of $1.70 a gallon for gasoline and $2.52 a gallon for diesel.

Fuel oil for heating this winter will be nearly a fourth less than what it cost last winter at $2.53 a gallon. While demand is expected to rise slightly because of colder weather, households are expected to pay on average $1,570 this heating season, or $383 less than last winter.

Households using natural gas are expected to pay an average of $860 this heating season, about the same as last year, despite sharply declining wholesale natural gas prices. The retail costs reductions are lagging because a third or more of the gas being used by utilities comes from storage and was purchased last summer when natural gas prices were much higher.

All the forecasts have fallen since the previous estimate in November.

The EIA said the wellhead spot price for natural gas is expected to drop to an average of $6.25 per thousand cubic feet next year, compared with a projected average of $9.17 per thousand 1,000 cubic feet in 2008. Natural gas for January delivery was $5.53 per thousand cubic feet Tuesday on the New York Mercantile Exchange.

The predicted 450,000 barrel a day decline in global oil demand next year reflects the more severe and longer economic slowdown now widely anticipated, the EIA said. Global oil demand declined by about 50,000 barrels a day this year, the agency said.

The world used 85.7 million barrels a day in 2008, EIA forecasts, an amount expected to drop to about 85.3 million barrels a day in 2009.

Contributing: Reuters