Energy Agency Forecasts Higher Oil Prices

The Energy Information Administration (EIA) is predicting that crude oil prices will stay above the $50-per-barrel mark far into the future, sparking increased demand for alternative sources of transportation fuel, such as ethanol and biodiesel. The analysis reflects sharp changes from the administration's projections a year ago when it forecast that oil prices in constant dollars would decline to $31 per bbl by 2025. In its long-term outlook for 2006, EIA predicts that oil prices will rise to $54 per bbl in 2025 and $57 per bbl in 2030. Oil imports are expected to account for 60% of U.S. demand in 2025, down from the 68% forecast last year. High oil prices will become a long-term fixture, EIA says, because the members of the Organization of Petroleum Exporting Countries are not expected to increase their combined production capacity as much as previously projected. As a result, world oil supplies will remain tight for several decades. EIA believes, however, that average natural gas wellhead prices, which have soared to more than $14 per 1,000 cu ft in recent weeks, will drop below $4.50 per 1,000 cu ft by 2016 as increased drilling brings on new supplies and imports become more readily available. Natural gas prices are projected to gradually increase to more than $5.90 per 1,000 cu ft in 2030.