Energy prices expected to hold steady

by Ron Sterk
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KANSAS CITY — One of the few positive results for consumers and food companies from the domestic and global economic downturn appears to be a year of lower and relatively stable energy prices.

After setting record highs less than a year ago, petroleum-based fuels and natural gas prices in 2009 are expected to average well below 2008 levels, the Energy Information Administration (E.I.A.) of the U.S. Department of Energy said in its latest Short-Term Energy and Summer Fuels Outlook. The forecast covered the "summer driving period" from April 1 through Sept. 30 as well as all of 2009.

The agency left "wiggle room" in its forecasts because of uncertainty about the economy and potential recovery, especially in the second half of the year, and because of potential changes in crude oil output from the Organization of Petroleum Exporting Countries (OPEC).

Lower prices were forecast for nearly all energy products, including crude oil, gasoline, diesel fuel and natural gas in 2009, all of which should be good news to the nation’s farmers, food processors, shippers and ultimately consumers. Most of the downturn may be attributed to falling consumption as a result of sluggish domestic and global economic conditions, the E.I.A. said.

Total use of liquid fuels in the United States in 2008 declined about 1.3 million barrels a day, or 6.1%, from 2007, the E.I.A. said, and another 430,000 barrel a day, or 2.2%, decline was forecast for 2009 "because of the weak economy."

After declining by 110,000 barrels a day in 2008 due mostly to hurricane related outages, U.S. crude oil production was forecast to increase by 440,000 barrels a day to an average of 5.4 million barrels a day in 2009. The increase would be the result of new production from two platforms in the Gulf of Mexico.

"This would be the first increase in production since 1991," the E.I.A. said.

West Texas intermediate crude oil was forecast to average near $53 a barrel in 2009, down from about $100 in 2008.

Distillate fuel, including diesel fuel and heating oil, production was forecast to average near 300,000 barrels a day less than last summer’s record high output of 4.33 million barrels a day, the E.I.A. said. Inventories at the start of the season were record large at 142 million barrels, 30 million barrels above the five-year average. Last year’s production was spurred by high prices and strong export demand for distillates, the E.I.A. said.

Diesel fuel prices were forecast by the E.I.A. to average $2.27 a gallon during the summer driving period, down 48% from last summer’s average of $4.37. Overall use of distillates (diesel fuel and heating oil), was forecast at 170,000 barrels a day for the period, down 4.5% from a year ago. Diesel prices were forecast to average $2.30 a gallon for the year, down from $3.80 in 2008 and well below the mid-July 2008 peak of $4.76.

Gasoline prices during the summer driving season were forecast to average $2.23 a gallon this year, down 42% from a year ago. The E.I.A. forecast average gasoline prices at $2.17 a gallon for 2009.

"Gasoline prices have increased to more than $2 per gallon, rising slowly but steadily since the beginning of the year in conjunction with rising crude oil prices and refiner margins recovering from recent near-historic lows," the E.I.A. said.

Natural gas prices were projected to average $4.24 per thousand cubic feet (mcf) in 2009, down 54% from $9.13 in 2008 due to reduced demand.

"Industrial natural gas consumption is expected to decline by more than 7% as industrial production declines during the current economic downturn," the E.I.A. said. Lower prices were expected to prompt increased use of natural gas to produce electric power, which will result in a decline of only 2% in total consumption for the year.

Prices for crude oil and most products were forecast to move higher in 2010 as economies improve and use increases at lower price levels. West Texas crude oil prices were forecast to rise to an average of $63 a barrel in 2010, diesel fuel to $2.69 a gallon and gasoline $2.42 a gallon.

This article can also be found in the digital edition of Food Business News, May 12, 2009, starting on Page 26. Click here to search that archive.

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