Federal energy economists are warning that the recent cooling fuel prices may be coming to an end. The U.S. Energy Information Administration (EIA) said it expects oil prices are likely to increase over the next few months, even as it reported diesel prices dropped for the week ending November 5.

EIA expects oil demand growth will outstrip non-OPEC oil production. On October 20, OPEC announced it would scale back production in an apparent effort to prop up falling energy prices. Increased demand and tightening supply will cause a faster draw-down in crude oil and energy inventories in the fourth quarter of 2006, EIA predicted.

This was illustrated as inventories of both gasoline and distillate—a petroleum product that can be refined into diesel fuel—have been at above average levels for the past month until recently, EIA noted.

Two unpredictable factors that will greatly affect oil prices are OPEC production cuts and the weather, EIA said. Generally, cold weather in the Northeast region will ramp up heating oil demand, which in turn buoys diesel prices since heating oil and diesel are similar products.

The national average price for a gallon of diesel dropped 1.1 cents to $2.506 for the week ending November 5, according to the Energy Information Administration. That was 19.2 cents below the average price during the same week last year.

The Lower Atlantic region saw the largest decline in prices, which in turn gave it claim to being the cheapest region in which to fill up at $2.448 after a 2.4-cent drop. California held onto the dubious honor of being the most expensive region, in spite of an 0.8-cent drop to $2.637. Not all regions saw prices fall, with the West Coast seeing a 0.4-cent rise to $2.606.

For more information, go to http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp

To comment on this article, write to Terrence Nguyen at tnguyen@fleetowner.com