Oil price forecast for '09 gets a trim
Government says it now expects crude to average $124 a barrel next year, down $9 from previous forecast. Home heating bills expected to weigh on consumers.
NEW YORK (CNNMoney.com) -- Oil prices could be lower than previously expected next year, but the outlook for home heating oil and natural gas signals more pain this winter, according to a government report released Tuesday.
In its August short-term energy outlook, the Energy Information Administration (EIA) said it expects crude prices to average $124 a barrel in 2009. That's down from July when the EIA projected an average price of $133 per barrel.
"Prospects of improved oil market fundamentals over the next 18 months point to an easing in the market balance and price weakness over the near term," the report said.
But homeowners are expected to pay an average of $1,182 to heat their homes between October and March, according to the EIA. That's an increase of nearly 20% over last year's average expenditure of $986.
That will put additional pressure on household budgets already strained by high gasoline prices, said Tancred Lidderdale, a senior economist at the EIA.
"The concern is that winter fuels bills could have as big, or a bigger impact," than high gas prices, he said.
Waning demand. Oil prices have tumbled as demand for petroleum products has slowed in the United States and is beginning to show signs of softness worldwide.
As of Tuesday, crude prices have fallen about $34, or 23%, from their peak price of $147.27 in July.
The EIA report "reflects a changing expectation of global demand strength," Lidderdale said.
While total world oil consumption is still expected to increase next year, the projection issued Tuesday is about 460,000 barrels a day lower than last month, reflecting the expectation of less robust U.S. and global demand.
Slower overall consumption, combined with planned increases in production by the Organization of the Petroleum Exporting Countries (OPEC), "raises the prospect for a drop in demand for OPEC crude oil and an increase in surplus capacity," the report said.
Economic conditions in the United States, the world's top consumer of oil, could also impact oil prices in the near term.
"Downward price pressures would increase if the economic slowdown proves deeper or longer than expected, and if higher prices lead to lower consumption and lower demand for OPEC crude than currently anticipated," according to the EIA.
Non-OPEC supply. Crude prices could also be pushed lower by increased production from countries outside of the world's main oil cartel.
The EIA said it expects non-OPEC supply to rise by 510,000 barrels a day in the second half of the year and increase to 850,000 barrels a day in 2009. Brazil, the United States and Azerbaijan are seen as the leaders among non-OPEC producers.
By contrast, the EIA reported that supply from OPEC countries decreased by 300,000 barrels a day in the first half of 2008.
While OPEC crude production is expected to rise in the third quarter of 2008, the outlook for the fourth quarter and next year is for further declines.
Caveats. But the downward trend in crude prices could be "minimal or short-lived," the report said.
Demand could rebound and planned production increases may not materialize, which would skew the EIA's forecasts.
Meanwhile, oil prices remain sensitive to "supply risks" in places such as Iraq, Nigeria and Iran. And the threat of hurricanes could also drive up prices "over the near term," according to the report.
EIA thinks "voluntary production cuts" by OPEC, which are "aimed at keeping inventories fairly tight," could also send oil prices higher.
Correction: An earlier version of this story gave erroneous figures for the EIA expectation for total world demand and non-OPEC supply. CNNMoney.com regrets the error. 
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