American motorists and other consumers of petroleum products may get a break next year if oil prices drop as some analysts predict.
Oil traded at $93 a barrel Christmas week, yet experts forecast a drop in price of $10 to $12 from current price levels in 2008.
If the best-case scenario comes to pass – no extremes in weather, no worsening of domestic economic problems, no serious international problems, and the expected increase in OPEC and non-OPEC production – we may see a drop in oil prices some 15 to 18 percent.
That’s off its almost $100 a barrel high for 2007. The average price per barrel in 2007 was $71.
"Next year we will probably be in a range of $80 to $85 a barrel," analyst Rick Muller with Energy Security Analysis of Wakefield, Mass., told The Christian Science Monitor.
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Oil prices could slip even lower in 2008 if the predicted U.S. recession materializes and domestic consumption sinks along with it.
The anticipated downward price pressure would result from a struggling U.S. economy and increased supply of crude both from OPEC producers and from independent sources, such as Azerbaijan, Brazil and Kazakhstan.
New oil-rich producers with large reserves are now emerging as important players on the international petroleum scene.
Other factors expected to nudge down prices include a relaxation of tensions between the U.S. and Iran, a spike in ethanol and biodiesel fuel supplies and use, and more oil flowing from wells in northern Iraq.
If oil prices do pull back as predicted and a recession does not materialize, the U.S. economy would benefit from lower costs in many areas in which petroleum is an overhead cost – farming, manufacturing, transportation, and distribution, for example.
The economy loses perhaps 25 basis points of growth as a result of high energy costs, Mark Vitner, senior economist at Wachovia Economics Group, told the Christian Science Monitor.
Not all analysts are optimistic about the oil outlook for 2008. Some forecast continued high prices for the commodity.
Oil prices next year could leap beyond its record high on Nov. 21 of $99.29 a barrel, according to an expert from Goldman Sachs.
Merrill Lynch has also cited potential upward price pressures for 2008, although the firm forecasts an average 2008 price per barrel of $82, based on worldwide fundamentals and circumstances as of December.
Price forecasting is an inexact science and can vary daily with market fluctuations and the changing variables that effect prices.
Included among those variables is weather: A colder-than-normal U.S. winter with its increased consumption of heating oil would significantly impact oil prices.
Consumers this winter will be paying about $500 more than last winter to heat their homes, according to the U.S. government Energy Information Administration (EIA). Last winter's average heating cost per household was $1,500.
International problems could further blow the lid off prices. They would include sabotage of wells, pipelines and access roads, terrorist activity, unforeseen production slowdowns or shutdowns of OPEC producers. Increased demand from China as it builds it strategic reserves could also factor in.
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