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Economic Forecasts

Oil Market to Remain Jumpy

Kiplinger's latest forecast on the direction of energy prices

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GDP Third-quarter growth a solid 3.5%, but slowdown is coming More »
Jobs Unemployment rate will decline further in '19 More »
Interest rates 10-year T-notes at 3.6% by end ’19 More »
Inflation 2.3% in ’19, the same as in ’18 More »
Business spending Up 7% in ’18, boosted by expanded tax breaks More »
Energy Crude trading from $65 to $70 per barrel in March More »
Housing 5.46 million existing-home sales in '18, down 1.5% More »
Retail sales Growing at least 4% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

Even production cuts from OPEC aren’t enough to give oil prices a boost. The cartel and nonmember Russia agreed to reduce their joint output by 1.2 million barrels per day starting in January, which should help lower global stockpiles of crude. Oil prices initially jumped on the news, but pulled back sharply the next trading day because of concerns about the health of the global economy. Benchmark West Texas Intermediate crude recently traded at $51.50 per barrel, near its lowest level in months and a far cry from the $74 peak it hit in early October.

We think oil prices will gradually rebound this winter because of the combination of strong demand and reduced supply. In addition to OPEC and Russia, Canadian production is also poised to decline after the premier of Alberta ordered producers in the province to curb output. The worsening economic crisis in Venezuela means that country’s output is likely to keep falling, too. And drilling activity in the United States is showing signs of slowing because of the sharp drop in crude prices.

Via E-mail: Energy Alerts from Kiplinger

But for now, cheap oil means cheaper fill-ups at the gas station. The national average price of regular unleaded fell again this week, reaching $2.42 per gallon. That’s down four cents from a week ago and 28 cents from last month. Odds are gas prices will keep slipping this month before heading up again early in the new year. Diesel, now averaging $3.11 per gallon, is also down four cents from last week and should decline a bit more before year-end.

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Natural gas prices are bucking the trend and rising on forecasts calling for more cold weather across much of the United States. Benchmark gas futures contracts were recently trading at $4.60 per million British thermal units (MMBtu), near their highs for the year and up substantially from this summer. The amount of gas held in underground storage is nearly 20% lower than is normal for this time of year, raising the specter of shortages if temperatures get cold enough for long enough to rev up demand. But although storage levels are low, production is soaring, which should help keep the market adequately supplied. Barring a severe and prolonged cold snap, we look for gas prices to retreat to about $4 per MMBtu this winter.

Source: Department of Energy, Price Statistics