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Oil Prices Change Little Despite OPEC Cuts

Jim Patterson, Managing Editor, The Kiplinger Letter
Kiplinger's latest forecast on the direction of energy prices

Oil prices are going nowhere fast. Benchmark West Texas Intermediate crude was recently trading at $53 per barrel: Down ever so slightly from a week ago and still in the $50- to $55-per-barrel range we expect to prevail for the rest of winter and into early spring. OPEC's decision to cut output seemed like a hopeful sign for oil bulls, but so far the cuts don't seem to be enough to whittle away the huge glut of oil and refined fuel held in storage around the world. U.S. oil stockpiles have been setting new record highs in recent weeks, for instance.

Prices should eke out some modest gains as spring progresses, with WTI likely to trade from $55 to $60 per barrel once warm weather arrives and Americans take to the highways for spring and summer vacations.

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Gasoline prices figure to perk up a bit more as spring arrives and refiners switch over to making costlier summer-blend gasoline. At $2.31 per gallon, the national average price of regular unleaded is up 3 cents from a week ago. Expect it to keep creeping higher in coming weeks, with a national average price near $2.50 by mid-spring. Diesel, averaging $2.52 per gallon, probably will stay largely unchanged for now.

Cooler weather has finally brought some gains for natural gas prices, which had been sliding sharply due to unseasonably warm temperatures in February. A return to wintry conditions means greater demand for gas as homeowners crank up their furnaces. Traders have bid up the benchmark gas futures contract to $2.94 per million British thermal units -- still relatively low, but up notably from a week ago. If the cold continues, gas prices could reach about $3.25. But any sign of springlike warmth in the weather forecast will put a stop to this week's rally. In short, expect major price volatility as traders react to the changeable weather of late winter and early spring.

Source: Department of Energy, Price Statistics

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