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EIA projects gasoline retail prices to average 3.15 per gallon in 2011

The US Energy Information Administration (EIA) issued its Short Term Energy Outlook update, which shows the trend for gasoline rising to $3.30 through 2012.

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Note the rising trend of UGA on the weekly chart, the exchange traded fund (ETF) that tracks gasoline.

Still, chart technicals merely report what's going on fundamentally. While rising crude oil prices are the primary reason for higher retail prices, higher refining margins are also expected to contribute.

According to NGVAmerica, this is the 10th week of consecutive price increases even for diesel fuel. Question there is, whether the upward trend will reach the July 2008 high point of $4.764 gallon.

According to the EIA - Short Term Energy Outlook, the price of WTI crude oil is expected to average about $93 per barrel in 2011, $14 higher than the average price for 2010.

An addition, here is a direct link to the EIA Chart Gallery for your perusal.

Note that EIA also projects that WTI prices will continue to rise for 2012, averaging $98 per barrel.

EIA’s forecast assumptions are based on U.S. real gross domestic product (GDP) growing 3.0 percent in 2011 and 2.8 percent in 2012, while world real GDP (weighted by oil consumption) grows by 3.9 percent and 4.0 percent, respectively, in 2011 and 2012.

On the regular-grade motor gasoline front, EIA expects retail prices to average $3.15 per gallon in 2011, 37 cents per gallon higher than the 2010 average, and $3.30 per gallon in 2012. That means prices are forecasted to average about 5 cents per gallon higher in each year during the peak driving season (April through September).

For the record, there is regional variation in the forecast, with average expected prices on the West Coast about 25 cents per gallon above the national average during the peak driving season.

And like every other forecast, there is also significant uncertainty with every forecast; meaning, black swan events can override even known probability.

Based on the current market prices of futures and options contracts for gasoline, though, it suggests a 35 percent probability that the national monthly average retail price for regular gasoline could exceed $3.50 per gallon during summer 2011.

Furthermore there is about a 10 percent probability that it could exceed $4.00 per gallon.

On the other hand, inventories for natural gas, of which the U.S. is a major supplier, are expected to remain high through 2011.

Although EIA estimates that natural gas working inventories ended January 2011 at 2.3 trillion cubic feet (Tcf), about 30 billion cubic feet (Bcf) or 1 percent below the 2010 end-of-January level, the projected Henry Hub natural gas spot price will average $4.16 per million Btu (MMBtu) for 2011, $0.22 per MMBtu lower than the 2010 average.

EIA expects the natural gas market to begin to tighten in 2012, with the Henry Hub spot price increasing to an average of $4.58 per MMBtu.

Disclosure: Frank Sherosky, creator of the chart and author of "Awaken Your Speculator Mind" does not hold any stock or option positions in this equity at this time.

About the Author: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks and writes articles, books and ebooks via, but may be contacted here by email: [email protected]

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