Dept. of Energy raises price outlook

AP News
Posted: Nov 10, 2009 4:17 PM

The government said Tuesday that oil prices should average about $77 a barrel this winter, 10 percent more than its estimates issued just last month.

Oil prices have jumped about $10 per barrel in the same time period.

The Energy Information Administration forecast is based on the assumption that the world economy would continue to pull itself out of recession, and U.S. GDP would grow by 1.9 percent next year. It said oil prices should continue to climb to $81 a barrel by December 2010.

Crude contracts closed at $79.05 a barrel Tuesday on the New York Mercantile Exchange. Oil has become a hot commodity this year as the dollar has weakened and money flows into crude contracts. Because oil is largely bought and sold in U.S. currency, it effectively becomes cheaper if the dollar falls. Investors holding stronger currencies like the euro can trade them in for dollars and buy more oil.

Rising in oil prices force other energy commodities higher. Gasoline, heating oil and diesel have all followed crude higher.

The EIA said it expects the national average gas prices to rise from $2.55 per gallon in October to $2.70 per gallon this month. Pump prices are estimated to rise to an average of $2.81 in 2010, with prices increasing to $3 a gallon during the summer driving season.

The EIA said the average household will pay 4 percent more for heating oil.

Rising energy prices have led to concerns that any economic recovery may stall as stressed consumers are forced to spend more to heat homes or fill up cars with gasoline.