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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 2.7% growth in ’19, down from 2.9% in ’18 More »
Jobs Unemployment rate will decline further in '19 More »
Interest rates 10-year T-notes at 3.6% by end ’19 More »
Inflation 2.4% at end ’19, unchanged from end ’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 Price growth: 5.0% by end of ’18 More »
Retail sales Growing 4.5%% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’18 More »

Oil prices keep plummeting, with benchmark West Texas Intermediate down more than 20% from its high earlier this fall. About five weeks ago, WTI was trading at $76 per barrel. Today: $58.50. It seems that the oil market has been hit by a perfect storm of bearish factors. Traders who had been bidding up crude prices, on expectations that renewed U.S. sanctions on Iran’s oil industry would squeeze the market, are now frantically reversing course as they realize that there’s still plenty of supply. The Trump administration has granted some temporary sanction waivers to buyers of Iranian crude, for instance. U.S. output keeps hitting new all-time records. And there are growing worries that a slowdown in the global economy will mean less demand for oil next year than previously expected.

Prices are bound to stay jumpy in the near term. But we look for WTI to stabilize and trade higher this spring, in a range of $65 to $70 per barrel in March. Though global supplies remain ample, we do expect the Iran sanctions to eventually take a toll. And OPEC is signaling that it will vote to cut output when it meets in Vienna in December.

Via E-mail: Energy Alerts from Kiplinger

For now, drivers are enjoying some sweet relief at the gas pump. The national average price of regular unleaded fell by six cents, to $2.69 per gallon. With gasoline demand relatively mute and crude oil costs falling, we look for gas prices to keep slipping. Come Thanksgiving, when millions of Americans take to the roads for the holiday, the national average price could be below $2.60 for the first time since March. Diesel has also been edging lower, with the national average down two cents from last week. Odds are its price will continue declining slowly.

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Meanwhile, look at natural gas prices soar! The benchmark gas futures contract has jumped to nearly $4 per million British thermal units, after trading for most of the summer under $3. Weather forecasts showing unseasonably cool temperatures across the heavily populated Mid-Atlantic and Northeast point to strong demand at a time when the amount of gas held in storage is low. But we think this price rally is getting ahead of itself. Although below average, gas stockpiles have been rising briskly. And gas production is booming. It would take prolonged and severe cold to really dent supplies. That could happen, but if temperatures moderate, expect gas prices to do the same.

Source: Department of Energy, Price Statistics