KANSAS CITY — While crude oil prices have held in a fairly narrow range in the past month, diesel fuel prices have risen to 16-month highs and likely will go higher as the economic recovery strengthens.
In its March Short-Term Energy Outlook, the U.S. Energy Information Administration raised its forecast for U.S. economic growth from a month earlier and forecast average diesel fuel and crude oil prices for the year well above year-ago levels and near current values.
Since bottoming at $2.017 a gallon on March 16, 2009, average U.S. on-highway diesel fuel prices reported by the E.I.A. have fluctuated but have been on a gradual uptrend the entire time. The average price was $2.946 a gallon as of March 22, the highest since $2.948 on Nov. 10, 2008, when prices still were on a downtrend from a record high of $4.764 set in July of that year. The latest price was up 41% from $2.09 a gallon a year ago and was up 5% from $2.797 on Jan. 4, 2010.
Diesel prices generally have followed crude oil prices higher, although crude has traded in a fairly narrow range between about $74@82 a barrel since the first of the year, and between $78@83 in the past month. At $81.68 a barrel last week, the West Texas Intermediate crude oil price was up 65% from $49.49 a year ago but was down 2% from $83.12 at the first of this year. The record high was $143.74 a barrel on July 4, 2008, and the recent low was $30.28 on Dec. 26, 2008.
“The economic recovery contributes to projected growth in total liquid fuels consumption of 200,000 barrels a day in 2010 and 210,000 barrels a day in 2011,” the E.I.A. said. Total consumption declined 810,000 barrels a day, to 18.7 million barrels, in 2009 for the fourth consecutive year, according to E.I.A. data.
“Projected distillate fuel (which includes diesel) consumption begins showing year-over-year growth this month, with an increase in average annual consumption of 20,000 barrels a day and 90,000 barrels a day in 2010 and 2011, respectively. However, this forecast for recovery in distillate fuel consumption remains highly uncertain because of the continuing observed weak diesel fuel demand,” the E.I.A. said. Distillate fuel use fell by 310,000 barrels a day in 2009, “led by a sharp economy-related decline in transportation usage,” the E.I.A. said.
Economic growth is expected to result in a 20% gain in average diesel prices in 2010 over 2009 and another 6% rise in 2011 over this year.
“On highway diesel fuel prices, which averaged $2.46 per gallon in 2009, average $2.96 per gallon in 2010 and $3.14 in 2011,” the E.I.A. said.
The E.I.A. has held its crude oil price projections about steady since late 2009. The agency forecast W.T.I. crude prices to average above $80 a barrel this spring, rise to an average of $82 by the end of the year and to $85 by the end of 2011.
A poll by the Reuters news service last week showed market analysts forecast U.S. crude oil prices to average $78.91 a barrel in 2010, up from an average of $77.70 forecast a month earlier.
The key to the E.I.A.’s forecasts, as well as those by other analysts, is the rate of economic recovery, not only in the United States but globally.
“Most of the increased economic growth in 2010 is expected in the Asia-Pacific and Middle East regions,” the E.I.A. said.
One leading indicator of U.S. economic recovery is the American Trucking Associations’ monthly Truck Tonnage Index, which rose 3.1% in January and was the highest since September 2008. The index declined 8.7% in 2009, the largest drop since 12.3% in 1982, the A.T.A. said.
“The latest tonnage reading, coupled with anecdotal reports from carriers, indicates that both the industry and the economy are clearly in a recovery mode,” the A.T.A. said.
The E.I.A. expects the projected increase in global crude oil demand in 2010 will be met by a combination of increased crude oil production in both the Organization of Petroleum Exporting Countries and non-OPEC countries along with a drawdown in inventories.
“Surplus (production) capacity remains ample, dampening the likelihood of a large upward swing in prices,” the E.I.A. said.