The Energy Information Administration trimmed its expected price outlook for retail gasoline this year while holding unchanged its projection for diesel fuel sold at retail outlets, announcing the forecast last week in its Short-term Energy Outlook for August.

The EIA shaved 2cts off its previous outlook, now projecting the 2009 U.S. average for regular grade gasoline to be $2.34 gal, which is well below the $3.26 gal average for 2008. Retail diesel fuel is seen averaging $2.46 gal this year, down sharply from the $3.80 gal average in 2008.

Higher projected crude oil prices 2010, estimated at $72 bbl due to improved economic conditions along with slightly higher refining margins, are expected to increase the average retail gasoline price to $2.66 gal, which is down 3cts from its outlook in July. The agency projects diesel fuel prices in 2010 will average $2.84 gal, up 5cts from the July estimates.

In offering its price outlook, the EIA highlighted the ongoing volatility in crude oil futures, which have reverberated in the gasoline market. The agency pointed to a $2.69 gal high in the retail gasoline average in 2009 reached on June 22 before the average tumbled 20cts as crude oil fell, and then rebounded with climbing crude prices.

“Gasoline prices will be strongly influenced by any changes in crude oil prices and, based on recent price volatility, could approach the June 22 peak later this summer,” the agency reported.

The EIA said rising global supply and current weak consumption indicate overall weakness in the oil market. However, “[t]he oil market continues to be defined by the tension between optimism over the perceived recovery of the global economy on the one hand and persistently weak global consumption of crude oil and other liquid fuels on the other,” said the EIA.

Total U.S. consumption of liquid fuels and other petroleum products is expected to decrease 790,000 bbl or 4.1 percent this year, including an expected 320,000 bpd or 8.2 percent drop in distillate fuel consumption. The agency said motor gasoline is “projected to decline slightly in 2009 as the positive impact of the significant price decline compared with last summer offsets some of the negative impact of the economic downturn.”

An expected modest economic recovery in 2010 is likely to increase total liquid fuels consumption 280,000 bpd or 1.5 percent, with a 50,000 bpd or 0.6 percent increase in motor gasoline consumption. Distillate fuels consumption is projected to increase by 110,000 bpd or 3.2 percent next year.

The EIA also said that it expects the contraction in global oil demand will reverse in the fourth quarter, increasing year over year for the first time in five quarters. The estimate assumes that the world economy will begin to recover slightly at the end of this year, led by Asia.

Overall, global oil consumption is projected to decline by 1.7 million bpd in this year, then rise by 940,000 bpd in 2010, the EIA said. The annual estimate for global demand reflects a slight upward revision of 100,000 bpd from the July estimates. On July 7, the EIA said world oil consumption would fall by 1.6 million bpd this year and then grow by 900,000 bpd next year.

The EIA also said preliminary data indicates global oil consumption declined by 3.1 million bpd in the first half of 2009 compared with year-earlier levels. Developed countries that make up the Organization of Economic Cooperation and Development accounted for 2.8 million bpd of the overall decline, while non-OECD consumption recorded a decline of only 300,000 bpd.

On supply, the EIA said that OECD commercial oil inventories stood at 2.75 billion bbl at the end of the second quarter. At 61 days of forward cover, OECD commercial inventories were well above average levels for that time of year.

EIA expects OECD oil inventories to remain above average levels throughout the forecast period. Industry reports indicate that crude oil and refined products held in floating storage, which are not included in the OECD stock totals, have recently increased to 140 million bbl in response to weakness in global oil consumption and higher levels of contango in the market.

Meantime, OPEC crude oil production is estimated at 28.7 million bpd in the second quarter, mostly unchanged from first quarter levels, but down 3.0 million bpd from the peak in the third quarter of 2008.

The combination of higher prices and OPEC’s historical tendency for weaker compliance with production targets over time suggests that OPEC crude oil production could rise over the remainder of the year, unless prices fall sharply from current levels, said the EIA.

OPEC is scheduled to meet on Sept. 9 to review market conditions and to consider its production policy.

The EIA said total non-OPEC crude oil and other liquid fuels supply is expected to rise by 410,000 bpd in 2009 and by 160,000 bpd in 2010, mostly because of higher output from Brazil, the United States, and the former Soviet Union. Higher output from those countries is expected to offset falling production in Mexico and the North Sea.

In the U.S., said the EIA, domestic production is expected to increase to an average of 5.22 million bpd in 2009 and 5.25 million bpd in 2010. Oil production from the Thunder Horse, Tahiti, Shenzi, and Atlantis Federal offshore fields is expected to account for about 14 percent of lower-48 crude oil production by the fourth quarter of 2010.