What Will the Price of Oil Be in 2007?

The Energy Information Agency (EIA) forecasts the price of a barrel of West Texas Intermediate (WTI) crude to be at around $65 a barrel through 2008. This is partly because of their forecasts of supply vs. demand, and partly because of OPEC’s stated intention to keep oil prices between $60-70 per barrel.

2006 Price Trends

In 2006, the price of WTI crude oil hit an all-time high of $76 per barrel in July, dropping to below $60 per barrel in the fall, before falling to nearly $50 per barrel in January 2007. The U.S. average retail price for regular gasoline remained at or above $3 per gallon for four consecutive weeks during the summer, before declining to an average of $2.26 per gallon over the last quarter of the year.

Many analysts explain the oil price fluctuations by citing high demand for gasoline in the summer months, and lower than expected demand for home heating oil due to warmer winter weather. However, some analysts also blame oil price fluctuations on speculation in the oil futures market by hedge fund and futures traders.

As a result of the Q4 oil price decline, OPEC cut its production targets for the first time since April 2004. OPEC, particularly Saudi Arabia, wants to keep oil prices high enough to generate a comfortable standard of living for their residents, but low enough to discourage further oil exploration and development of alternative fuels.

How Are Oil Prices Measured?

Crude oil prices measure the spot price of various barrels of oil, most commonly either the WTI or the Brent Blend. The OPEC basket price and the NMEX Futures price are also sometimes quoted.