High Fuel Prices Expected For Summer, But Oil Could Tumble

April 12, 2011

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The Energy Information Administration predicts high fuel prices this summer, but recent price increases may be substantially due to speculation.

Crude oil prices hit a 30-month high on Monday at $113.36, but have slipped back to $106.22 after Goldman Sachs fingered speculators on recent price increases.

In the long term, the Energy Information Administration expects oil markets to continue to tighten over the next two years, given expected robust growth in world oil demand and slow growth in supply from non-OPEC countries.

Projected West Texas Intermediate prices will average $106 in 2011 and $114 per barrel in 2012, increases of $5 per barrel and $9 per barrel respectively, predicts the EIA. WTI crude oil spot prices averaged $89 per barrel in February, $106 per barrel in March, reaching $111 on April 11.

The rise in crude oil prices is reflected in higher petroleum product prices. Diesel fuel prices, which averaged $2.98 per gallon last summer, are projected to average $4.09 this summer; gasoline will average $3.86 per gallon, according to EIA.

However, prices may not fly so high this summer. On Monday, Goldman Sachs warned clients that speculators may be boosting crude prices as much as $27 per barrel - about one-fifth of the price. Oil tumbled more than 3 percent on Tuesday following the announcement. Benchmark West Texas Intermediate crude for May delivery gave up $3.71 to $106.22 per barrel on the New York Mercantile Exchange.

Volatility seems to be the only certainty as Muammar Gaddafi broke ceasefire plans and unrest continues throughout the Middle East.

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