In its Short-term Energy Outlook for July released last week, the Energy Information Administration revised its 2009 retail price projections for regular grade gasoline and diesel fuel higher. The EIA also throttled back its expectations for lost global oil demand this year while adjusting slightly higher the consumption rate for 2010.

The EIA elevated its 2009 price outlook for retail gasoline by 3cts and for diesel by 6cts from its June projection, expecting the U.S. gasoline average at $2.36 gal and diesel at $2.46. That compares to the $3.26 gal average for gasoline in 2008, while retail diesel fuel averaged $3.80 gal last year.

“Crude oil prices rose in June for the fourth consecutive month, in part because of stronger-than-anticipated global economic activity, primarily in Asia,” EIA reported. “Market sentiment continues to reflect expectations of an economic recovery and a future rebound in oil demand that are outweighing weak current oil consumption and high inventory levels.”

The agency said that production restraints by member of the Organization of Petroleum Exporting Countries and unrest in Iran and Nigeria are also supporting prices.

Higher projected crude oil prices for 2010, estimated at $72 bbl due to an improvement in economic conditions, are expected to boost average motor gasoline prices to $2.69 gal next year, EIA reported. The agency forecasts diesel fuel prices in 2010 to average $2.79 gal, up 12cts from the previous outlook.

“The downside price risks of this forecast are a delayed or weaker-than-expected global economic recovery, ample global surplus production capacity, and high commercial inventories,” said the EIA.

Total consumption of liquid fuels and other petroleum products is expected to fall 650,000 bbl or 3.3 percent this year. The agency said motor gasoline is projected to remain virtually flat “as the significant price decline from last summer offsets some of the impact of the economic price downturn.”

Modest economic recovery in 2010 is expected to contribute to a 310,000 bpd or 1.6 percent increase in total liquid fuels consumption.

For global oil demand, the EIA said world oil consumption will fall by 1.6 million bpd this year and then grow by 900,000 bpd next year. The July estimates are more bullish than June estimates. The EIA last month projected that consumption for 2009 would fall by 1.7 million bpd while demand would grow by 700,000 bpd in 2010.

The agency said global consumption fell 3.0 million bpd from the fourth quarter of 2008 through the second quarter due to the economic downturn.

The rate of consumption decline is expected to moderate later this year “because of comparison with a lower level of consumption last year and projected gradual global economic improvement.”

“In particular, there has been stronger economic activity in Asia than was previously anticipated, and the current forecast reflects higher expected oil consumption in that region,” the EIA said. As a result, a smaller decline in global oil consumption is expected in 2009.

On supply, the report projects total non-OPEC supply would rise by 360,000 bpd in 2009 and remain fairly flat in 2010, as higher output in Brazil, the U.S., Azerbaijan and Kazakhstan is expected to offset declining production in Mexico, the North Sea and Russia. Last month, the EIA projected non-OPEC supply would jump 400,000 bpd this year.

The EIA estimated OPEC crude oil production at 28.6 million bpd in the second quarter, down slightly from first quarter levels, and sharply lower—down 3.1 million bpd—from the third quarter 2008 levels.

OPEC output is expected to remain near current levels through the end of 2009, then trend upwards moderately in 2010 in response to higher demand, said the EIA. But even if demand rebounds next year, ample surplus capacity in Saudi Arabia will moderate upward price pressure.

The EIA report says global crude inventories held by developed countries that make up the Organization of Economic Cooperation and Development stood at 2.7 billion bbl at the end of the first quarter. The federal agency now predicts that OECD commercial inventories held steady during the second quarter, but still remains above the historic average.

Meantime, floating storage has fallen from a high of more than 120 million bbl at the start of 2009 to 80 million bbl currently.