U.S. gasoline prices are expected to average less than $2 a gallon for the first time since 2004 while oil languishes below $40 through August, the Department of Energy (DOE) said.

“Lower crude oil prices, which have fallen more than 70% since the summer of 2014, are the main driver of cheaper gasoline prices,” said Adam Sieminski, administrator of the Energy Information Administration (EIA). “U.S. commercial inventories of crude oil reached nearly 503 million barrels [MMbbl] at the end of January, marking the first time that oil stocks topped 500 million barrels since 1930.”

Builds in oil inventories will continue, with U.S. crude stocks expected to peak this year at 517 MMbbl in April, he said.

The EIA’s Feb. 9 short-term energy outlook forecast Brent crude oil will average $38/bbl in 2016 and $50/bbl in 2017.

West Texas Intermediate (WTI) crude oil prices are expected to average about the same as Brent in both years, the EIA report said.

“However, the current values of futures and options contracts continue to suggest high uncertainty in the price outlook,” the report said. The EIA noted the wide swing between prices in May, when it forecast WTI prices will average $36/bbl, while Nymex contract values suggest the market expects WTI to range from $21/bbl to $58/bbl.

As a result, the retail price for a gallon of regular gasoline is forecast to average $1.98 per gallon (gal) in 2016 and $2.21 in 2017, compared with $2.43 in 2015.

In January, the average retail regular gasoline price was $1.95/gal, a decrease of $0.09/gal from December and the first time monthly gasoline prices averaged below $2/gal since March 2009.

In February, the EIA expects the monthly average retail price to sink to a seven-year low of $1.82/ gal before rising during the spring.

Gas, Coal And Cold

Natural gas inventories are expected to remain tight after a recent winter blast.

“Despite strong home heating demand during the recent East Coast blizzard, natural gas inventories are running 20% higher than a year ago and are on track to be above 2 trillion cubic feet at the end of the winter heating season for the first time in four years,” Sieminski said.

In January, working inventories were 2,934 billion cubic feet (Bcf), 20% higher than the same week in 2015 and 18% higher than the five-year average from 2011-2015 for that week.

The EIA forecasts inventories will end the winter heating season on March 31 at 2,096 Bcf, which would be 41% greater than at the same time in 2015.

Henry Hub spot prices are forecast to average $2.64 per million British thermal units (MMBtu) in 2016 before rising to $3.22/MMBtu in 2017. In 2015, the average MMbtu cost $2.63.

However, rising prices will likely slacken the switch from coal to gas for power generation. Natural gas was used more than coal to generate electricity during the last six months of 2015, but pricing will discourage further increases in the use of the fuel for power generation during 2016, Sieminski said.

“U.S. coal production for January is estimated to be the lowest in more than 30 years, reflecting weak coal demand by the electric power sector,” he said.

U.S. exports to Mexico have also started to experience a lift as new pipelines have come online, a January report by Cowen & Co. said.

December exports of U.S. natural gas hit an all-time high with an average 3.3 Bcf/d, up 1.5 Bcf/d over December 2014.

“The jump in exports is attributed to the Los Ramones II North Pipeline which is taking South Texas gas deliveries from the NET Mexico Pipeline,” Cowen analyst Charles Robertson II said.

Darren Barbee can be reached at dbarbee@hartenergy.com.