Consumers eyeing a recent 15 per cent drop in oil prices for signs high fuel costs are over may be disappointed as new US fuel regulations and strong summer demand end the slide, experts say.
A swell in US product and crude inventories knocked oil prices down to $58 a barrel this week after they rose to nearly $70 in January on fears Iran's nuclear ambitions could lead to a supply disruption from the Opec nation.
Experts say that, while oil futures may not climb above records of $71 a barrel seen last summer following hurricanes Katrina and Rita, the recent price fall may be short-lived.
"A couple of weeks ago we saw prices were moving toward $70 again. This is a very volatile marketplace but I think on the whole we are likely to see the average price this year higher than last year," said Wachovia Bank economist Jason Schenker.
Oil prices are likely to average about $59 a barrel this year, up from $56.70 last year, according to a Reuters poll of 32 analysts this week. Bulging stocks could drain quickly as heavy spring US refinery maintenance cuts production and drivers hit the road for summer holidays, analysts warned.
"We have big maintenance going on so refiners can gear up for low-sulfur diesel, so we're going to chew up some of these high product levels," said Sarah Emerson, director of Energy Security Analysis.
"As that happens we are going into the driving season and it's probably going to be fairly strong because the economy is doing well," she added.
Refiners are expected to perform more work on plants in the runup to driving season as they prepare for the phase-in of greener US lower sulfur diesel specifications from June 1.
"People are looking to product spec changes and the disruption that will be caused by product spec changes," said Craig Pennington of Schroders.
If oil prices fall too far, producer group Opec could cut production from current 25-year highs. Some members have already called for a reduction in output ahead of the cartel's next meeting March 8.
And any signs of disruptions from key producer nations such as Iran and Nigeria, where output was disrupted last month by militant attacks, will also support prices, analysts said.
High returns in the commodities and energy sector have attracted a wave of buying by big money funds, contributing to a doubling of oil prices over the past two years.
"Metals and energy are still the place to be long-term. Look at the three- and five-year curves, they are not falling," said Mark Mathias, managing director of Dawnay Day Quantum, which is launching a commodity index fund in March.
"Short-term prices bounce around. I think we will see the long end of most curves move upwards," Mr Mathias added.