U.S. sees oil use down on weak economy and high prices

By Tom Doggett

WASHINGTON (Reuters) - Higher U.S. gasoline prices and a slowing economy will cut into U.S. oil demand through the summer driving season much more than previously thought, the government's top energy forecasting agency said on Tuesday.

"Based on projections of weak economic growth and record high crude oil and product prices, (petroleum) consumption is projected to decline," the Energy Information Administration said in its latest monthly forecast.

Thanks to rising crude oil costs, U.S. drivers will pay an average $3.66 a gallon for gasoline this summer, up 12 cents from earlier estimates, the Energy Department's analytical arm said.

Pump prices are expected to peak at $3.73 a gallon in June, 11 cents more than previously projected, the agency said.

Gasoline prices will be higher due to expensive crude oil, which the EIA said it now expected will average $110 a barrel this year, about $9 more than the agency forecast last month.

The price of U.S. crude hit a record $122.73 a barrel on Tuesday at the New York Mercantile Exchange, as the national price for regular, self-service gasoline set a new of record $3.61 a gallon this week.

High fuel costs, along with a sputtering economy, will take an even bigger bite out of gasoline consumption, which was already forecast to decline from last summer's levels.

"The gasoline (situation) we're facing here in the U.S. is not something we've seen in 20 years, where we have these high prices on top of a weak economy," said EIA analyst Tancred Lidderdale. "Both are unquestionably taking their toll."