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The Subcommittee on Energy and Water Development held a hearing to discuss the forecasts for oil and gasoline prices and examine the Energy Information Administration’s (EIA) budget request for Fiscal Year 2009. Chairman Byron Dorgan (D-N.D.) said that the EIA is a very important organization and that their work is very important to the United States. However, Dorgan could not understand why the EIA’s projections continued to be “way, way, way off” for the past six months. Dorgan also said that he was confused as to why the price of oil and gasoline skyrocketed when nothing fundamentally changed in order to cause this.

Sen. Pete Domenici (R-N.M.) said that the U.S. must come up with solutions to increase supply and decrease the demand for oil. Domenici said that the country must produce more energy that it owns now in order to increase domestic supply. He explained that the U.S. is going to move from the crude oil economy it has now to something different, and though this process may take as long as thirty to forty years, it is a “bridge” that the country needs to cross.

Guy Caruso, Administrator for the EIA and U.S. Department of Energy, gave a testimony which focused on recent forecasts for oil prices and the factors that were considered in making these forecasts. Caruso said that since he last testified on this issue in December 2007, crude oil prices have increased from a monthly average of $92 per barrel to more than $135 per barrel. The EIA’s current forecast for crude oil prices is an average of $122 per barrel in 2008 and $126 per barrel in 2009. Caruso explained that there are several factors which combine to cause oil supply to struggle to keep up with demand growth, but also said that market fundamentals – demand, supply, inventories, and spare production capacity – are the primary drivers of global oil prices.

Caruso said that the EIA relies on a number of tools to project crude oil prices, including an econometric model of oil production, inventories, and spare capacity. He said that the EIA continually strives to improve their short-term forecasts. Caruso also said that recent experience with high and rapidly rising oil prices and large deviations of actual prices from forecast values highlight the challengers faced by EIA. He said that it is necessary for the EIA to have access to more data, which is what their Fiscal Year 2009 budget request proposes additional improvements for. However, when Dorgan asked what exactly caused the price of oil to double this past year, Caruso could not offer a good explanation.