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Dec 14, 2007 9:37 AM

The Department of Energy (DOE) is forecasting diesel fuel prices to average about $3.21 per gallon in 2008 with no cost relief in sight. The projection comes as part of the DOE 18-month short term energy outlook released December 11.

Driving diesel prices is the $80-plus per barrel projected crude oil prices likely to result in historically high prices for the major petroleum products.

Expectations that tight market conditions will persist into 2008 are keeping oil prices high. Despite the OPEC decision recently to hold production quotas steady and downward revisions to projected consumption growth in 2008, the oil balance outlook remains characterized by rising consumption, modest growth in non-OPEC supply, fairly low surplus capacity, and continuing risks of supply disruptions in a number of major producing nations.

Although the balance assumes a mild slowdown in world economic growth, the major downside risk remains the possibility of a sharper-than-expected economic slowdown brought on by the fallout from the unsettled financial markets, which would dampen oil demand and ease oil price pressures, the report said.