The crude oil squeeze will ease in 2006, say TD Bank economists.

The headline oil price, currently around US$68 a barrel, could rise to a new high of US$75 or US$80 a barrel later this year but is likely to fall back to US$45 by early 2007, according to a bank study released today.

Although little cost relief is in prospect this winter, prices for gasoline and natural gas should fall along with the crude-oil price in 2006 and 2007, it says.

Beyond 2007, TD predicts oil to rise back above US$50 per barrel, due to “supportive underlying fundamentals – notably, strong crude oil demand from developing markets, limited prospects for supply gains and inadequate refining capacity.”

The report — Crude Oil Squeeze to Ease Next Year: But Era of High Prices Here to Stay — says a significant slowdown in the American economy will be the main factor in the oil price decline.

“A weaker U.S. performance will lead to some slackening in the tight global supply-demand balance for crude oil and refined products, which in turn will ease the massive fear premium currently embedded in prices,” says TD economist Derek Burleton.

TD Economics expects the annualized growth of the U.S. economy to slow from its current rate of between 3.5% and 4% to just over 2% by the second half of 2006.

This will reduce annual growth in global crude oil consumption from more than 2% now to about 1%, it says.

Although “the laws of the oil price cycle are far from being repealed,” TD Economics does “see merit behind the hypothesis that the world has entered a new era of high crude oil prices.”

The report suggests that “the fundamental price – or the price that can be justified by supply and demand drivers alone over the long run — has probably increased to about US$40 per barrel from the historical level of about $30” in inflation-adjusted terms.