The Energy Information Administration released its Short-term Energy Outlook for March last week and again revised lower its projection for world oil demand in 2009 due to an ongoing global economic contraction. The EIA also adjusted its price outlook for retail gasoline up, while dropping its forecast for diesel prices this year.

The key feature markets are focused upon is demand expectations in their attempt to gauge supply with consumption levels during a period of uncertainty as the global economy continues to shrink. Contracting economies use less energy, and the EIA says it expects the economic activity to be low throughout the year, with world gross domestic product seen down 0.8 percent followed by a 2.6 percent growth rate in 2010.

U.S. real gross domestic product is expected to decline by 2.8 percent this year, “leading to a reduction in domestic energy consumption for all major fuels.”

In its most recent forecast, the EIA pegged global oil consumption down 1.4 million bpd from year-ago levels, revising down by 200,000 bpd its projection from month prior. The federal agency does expect a recovery in 2010, calling for global oil demand to increase by 900,000 bpd from this year’s levels, however, the outlook was trimmed from February’s estimate that demand would increase in 2010 by 1.2 million bpd.

Total consumption of liquid fuels in the U.S. in 2008 declined by almost 1.3 million bpd or 6.1 percent from 2007, with liquid fuels including all petroleum products, natural gas liquids, biofuels, and liquids derived from other hydrocarbon sources.

“The major factors contributing to the fall in consumption were a rapid rise in retail prices to record levels during the first half of 2008 and a deteriorating economy in the second half of the year,” said the EIA.

The EIA projected total liquid fuels consumption for 2009 will decline by another 420,000 bpd or 2.2 percent because of continued economic weakness.

The economy is expected to rebound in 2010, with projections for a 1.9 percent year-over-year growth in U.S. real GDP. The economic recovery is projected to boost overall demand for liquid fuels consumption in 2010 by 210,000 bpd or 1.1 percent, “with all of the major fuels registering increases in consumption.”

For its price outlook, the EIA projected retail regular grade gasoline prices will average $1.96 gal nationally this year, revising its forecast up 1cts from month prior. The beltway forecasters maintained their expectations that U.S. regular grade gasoline will average $2.18 gal in 2010.

The U.S. average for regular grade gasoline averaged $3.26 gal in 2008.

In releasing its outlook, the EIA said it expects the monthly retail regular gasoline price average “to peak slightly over $2 gal this year, although it remains possible that weekly prices could rise significantly higher at some point this spring or summer.”

“Because of lower motor gasoline consumption, refining margins for gasoline are expected to remain depressed for much of 2009 but are expected to increase slightly in 2010 as consumption begins to recover,” said the EIA.

After averaging $1.69 gal in December 2008, the lowest monthly average since February 2004, the monthly average increased to $1.92 gal in February.
“Gasoline prices have been slowly increasing over the last 2 months while crude oil prices have stabilized and refiner margins have recovered from their recent near-historic lows,” said the EIA.

For on-highway retail diesel fuel, EIA cut its 2009 outlook from month prior by 9cts to $2.19 gal amid continued weak demand, which is $1.60 below the 2008 average. For 2010, the agency expects the retail diesel fuel will average $2.51 gal.

“The expected continuing decline in diesel fuel consumption in the United States this year as well as the growing weakness in distillate fuel usage outside the United States are projected as a result in a narrowing of refining margins for distillate throughout the forecast period,” the agency reported. “Because of the global weakness in industrial output, it is possible that we will see diesel prices fall below gasoline prices this summer.”