Notwithstanding the $10 drop in the price of oil over the last few weeks, the government predicts that crude will still average near $70 for the rest of 2006.
The Energy Information Administration said it expects gasoline prices to average $2.55 a gallon by January before rising again next spring.
EIA's bullish price view is based on rising demand with only a limited increase in supply.
The agency expects worldwide petroleum consumption to grow by about 1.7 million barrels a day in 2007 as opposed to the 84 million barrels a day used in 2005.
EIA reduced its estimate of oil consumption by 100,000 barrels a day due to high prices.
Production capacity is expected to increase only slightly during the forecast period, existing and potential supply problems throughout the world will shape the tight supply-demand balance resulting in little relief from current pricing patterns.
Following the EIA's report oil prices briefly turned higher but later gave gains back with US light crude for October delivery trading down 51 cents on the Nymex.
It also provided a little boost to the shares of oil majors like ConocoPhillips, ExxonMobil and Chevron.
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