The expected rate of growth in U.S. gasoline demand this summer was scaled down sharply on Tuesday by the government's top energy forecasting agency on the likelihood that high pump prices will cut into fuel consumption.
The federal Energy Information Administration lowered its estimate of U.S. gasoline demand growth for the current quarter by 90,000 barrels per day and decreased it by 30,000 barrels a day for the third quarter, when driving usually peaks.
Overall gasoline demand will likely be up from last summer at about 9.35 million barrels a day, despite much higher prices at the pump.
In its new monthly energy forecast, the EIA said consumers will pay more than it previously thought for gasoline this summer at an average $2.71 a gallon, up 9 cents from its old forecast and 34 cents higher than last year.
The national price for regular unleaded gasoline this week fell a penny to $2.91 a gallon, the first decline in six weeks, the agency said. Prices in many cities top $3.
EIA Administrator Guy Caruso told Reuters last week that most of the recent jump in wholesale gasoline prices had already been passed on to consumers at the pump and fuel costs were close to peaking.
The agency said the supply problems of the last month from oil refinery shutdowns, and the switch companies are making to ethanol from the water-polluting gasoline additive MTBE, appear to be easing and could push pump prices lower.
"While isolated locations continue to see price volatility and significant supply uncertainties remain, some softening in the near term gasoline balance is expected to dampen retail prices somewhat, barring new, unanticipated supply disruptions," the EIA said.
"The potential for midsummer (supply) retightening exists, however, if demand growth picks up or refinery outages occur at unusual rates," the agency said.
Separately, the EIA warned there is little room to boost world oil production if global supplies are disrupted by instability in major oil producing nations or natural disasters, and this situation will help keep crude prices high through 2007.
"The prospects for significant improvement in the world petroleum supply and demand balance appear to be fading," the agency said.
"Steady and continued growth in world oil demand will likely combine with only modest increases in world oil production capacity leaving little room to increase production in the event of geopolitical instability," the EIA said.
The monthly price for U.S. crude oil should average around $68 a barrel through the end of next year, according to the agency's forecast.