Economic bright spot: energy prices

The best economic news that consumers receive next year could be the price they pay for energy.

Although it's almost 2009, prices at the pump – close to $1.65 a gallon – are below what Americans paid in 2004. That year, the top three bestselling vehicles were pickup trucks, and gasoline prices averaged $1.85 a gallon for regular.

Also this winter, residents of the Northeast are expected to see their heating costs shrink by almost 25 percent when compared with last winter.

"It's a bit of a gift, like a giant tax cut," says Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Mass. "This is one of the best things to happen to the economy over the next six months."

In 2009, the price of gasoline will average $2.03 a gallon, the Energy Department forecasts. While this number is higher than current prices, it's much lower than 2008, when gasoline prices averaged closer to $3.27 a gallon and crested at over $4 a gallon in July.

"We think oil prices will start to recover slowly next year," says Tancred Lidderdale, a short-term energy forecaster at the Energy Information Administration (EIA) in Wash­ington. "But it is hugely uncertain, and a lot depends on the economy."

Crude oil prices will average about $51 per barrel next year, Mr. Lidderdale forecasts. His projection mirrors the price on the futures market, where oil for delivery in December 2009 is priced at $52 a barrel.

On Wednesday, the price of oil was just over $37 a barrel.

Still, private forecasters are expecting a wide range in oil prices next year. "If things go really bad, you could see oil prices dropping to $10 to $11 a barrel," says Phil Flynn, a vice president at Alaron Trading Corp. in Chicago. "It's more likely to fall to $25 a barrel on the low side and by the end of the year be back to the $70-a-barrel level."

Much will depend on whether the Organization of Petroleum Exporting Countries can rein in its production. OPEC's production in 2008, according to the EIA, will total about 32.18 million barrels of oil per day. In 2009, it will drop to 30.61 million barrels per day, the agency estimates.

"OPEC says they will cut [production], but it's a big challenge for a couple of countries, Venezuela and Iran in particular," says John Felmy, chief economist at the American Petroleum Institute (API) in Washington. "Both face challenges of social unrest if they don't have the income from oil."

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