WASHINGTON, D.C. --- A new Energy Department report forecasts that gasoline prices will decline during the rest of June and much of July, but rise again toward the latter part of summer. The forecast is included in the latest "Short-Term Energy Outlook," released by the department's Energy Information Administration (EIA). The EIA blames recent rising gasoline prices on supplies that were insufficient to meet demand. This led to inventories being drawn fairly rapidly. But the higher prices encouraged production and imports to ramp up, and the additional supply has recently built inventories a little more quickly than usual. This has helped push prices lower, although they remain relatively high since inventories remain below the average range for this time of year. As a result, forecasts point to a continuing tight market. "Generally speaking, the higher retail prices reach, the more supply is going to appear on the market and the more demand growth will be dampened, with prices subsequently falling more dramatically than they would otherwise," the EIA said in last week's petroleum report. "This is exemplified in Ohio, where retail regular gasoline prices have dropped by nearly 34 cents in just two weeks." The opposite response can also happen, EIA points out. "The deeper prices decline, the more supplies are reduced from their peak and the more demand growth expands, while inventories draw faster than typical (or build slower than normal depending on the time of year)," the EIA said. "This reduction in supply and increase in demand growth can then lead to sharper increases in prices than would be seen otherwise. While actual changes in supply and demand conditions can alter actual price levels from their projected summer path, EIA still expects prices to continue to decline over the next few weeks before possibly rising again towards the latter part of summer, based on current available evidence."

Originally posted on Fleet Financials