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Higher Oil Prices Forecast

World petroleum supplies will remain tight, but natural gas prices are expected to decline

by Glenn Hess
December 15, 2005

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 the 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 thousand 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.


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