Global oil supplies are expected to remain tight through 2008 as demand grows "much faster" than the world's major oil producers are able, or willing, to boost their petroleum output, the U.S. government's top energy forecasting agency said Tuesday.
The collective oil inventories held by the United States and other industrialized countries will drop to just 49.3 days of expected supply needs by next February, the smallest inventory buffer since December 2004, the U.S. Energy Information Administration said in its new forecast.
"The oil balance outlook remains characterized by rising consumption, modest growth in non-OPEC supply, fairly low surplus (oil production) capacity and continuing risks of supply disruptions in a number of major producing nations," the Energy Department's analytical arm said.
"Expectations that tight market conditions will persist into 2008 are keeping oil prices high," the EIA said.
The agency said the Organization of Petroleum Exporting Countries (OPEC) could offset the upward pressure on prices with much more supply, but the producer group decided last week to maintain existing output levels because it believes the global oil market is well-supplied.
The agency sees OPEC output rising 400,000 barrels per day from the fourth quarter to 31.6 million bpd in the upcoming first quarter and then averaging 31.7 million bpd for next year.
"Even with the additional OPEC production expected next year, (industrialized nations') commercial inventories would remain in the low end of the 5-year range in 2008," the EIA said.
OPEC decided in September to boost output beginning on Nov. 1, but EIA chief Guy Caruso told Congress Tuesday the extra oil likely will not "be enough to halt the downward trend in commercial inventories over the next several months."
The lack of significant additional OPEC supplies will help increase the average price for U.S. oil in 2008 to nearly $85 a barrel, up from $72 this year and $66 last year, Caruso said.
With oil accounting for more than half the cost of making motor fuels, consumers will suffer at the pump as a result.
"Both motor gasoline and diesel prices are projected to average well over $3 per gallon in 2008, with gasoline prices peaking at over (a record) $3.40 per gallon next spring," the EIA said in its forecast.
The current all-time high national price for gasoline is $3.22 a gallon, set last May. The average U.S. pump price is now at a 6-week low of $3 a gallon.
Homeowners in the U.S. Northeast will also pay much more for winter heating oil than previously expected. The EIA revised upward its price forecast for the region, with the average household paying $2,012 in heating oil costs, up 34 percent from last winter.
The EIA said its forecast assumes a mild slowdown in world economic growth, but the side benefit of a worsening U.S. mortgage and credit market crisis would be less oil use and lower energy costs.
"The major downside risk remains the possibility of a sharper-than-expected economic slowdown brought on by the fallout from the unsettled financial markets, which would dampen oil demand and ease oil price pressures," the EIA said.