Gasoline:
eia.doe.gov
quote.bloomberg.com
Bloomberg Energy
Mon, 07 Feb 2000, 5:31pm EST
2/7 16:23 U.S. Gasoline Prices Could Reach Records This Summer Because of Low Supply
By Josh P. Hamilton
Gasoline Prices in U.S. Poised to Reach Records This Summer
New York, Feb. 7 (Bloomberg) -- U.S. motorists may have an
unpleasant surprise at the pumps this summer: Record prices.
Retail gasoline rose to a nine-year high in the last week of
January, during the fuel's slowest period of demand, and
government and private forecasters alike predict that unusually
low inventories will lead to soaring prices by the time the warm-
weather driving season gets underway at the end of May.
``Come Memorial Day, you could see all-time high gasoline
prices unless there is a very dramatic effort by refiners to
increase supply,' said Tom Blakeslee, an oil and gas trader at
Eildon Marketing LLC in White Marsh, Maryland.
Problem is, refiners may not make that effort.
``Inventories are low and crude oil is too expensive to buy
and run through refineries at normal rates,' said Marianne Kah,
chief oil economist at Conoco Inc. in Houston, the nation's 4th
largest oil company and operator of 4 refineries in the U.S.
Refiners have resisted increasing purchases of crude oil to
make gasoline because oil prices have risen more than motor fuel
over the past year, and that's keeping their profit margins low.
Crude oil futures on the New York Mercantile Exchange have rallied
144 percent from a year ago, while gasoline is up only 126
percent.
What's more, a cold spell last month boosted heating oil
prices and profits -- the futures market is up 150 percent in the
past 12 months. That encouraged refiners to keep production
focused on heating fuel instead of gasoline. By this time of year,
they're normally switching over to make more gasoline.
Added to that, the Organization of Petroleum Exporting
Countries has been restricting the flow of crude oil, the fuel's
raw material, in order to eliminate a surplus.
Low Supplies
The result: plunging inventories. U.S. gasoline inventories
stand at 200 million barrels, the American Petroleum Institute,
said last week. Inventories haven't been that low at the end of
any January over the past 15 years. And with U.S. stockpiles
normally reaching an annual peak in January or February, prospects
for steep declines in fuel supplies, and higher prices, are real.
The average retail gasoline price rose to about $1.32 a
gallon last week, the highest since December 1990, the government
said.
``This spring, assuming the crude oil price path holds,
regular unleaded self-service retail motor gasoline prices will
likely be at their highest level ever,' the U.S. Energy
Department's Short-Term Energy Outlook said today.
``Prices at the pump are projected to peak at around $1.40
per gallon during the height of the driving season,' the report
said. ``However, in real terms (adjusted for inflation), the
projected price will be about 20 percent lower' than the highs of
the Persian Gulf War in late 1990.
Even so, ``motorists can expect to pay about 20 cents per
gallon more this driving season (April-September) than they did
during the same period last year,' the report said.
Supply Disruptions
Should gasoline inventories fall to around 185 million
barrels, there's a ``high probability of distribution problems,
meaning shortages,' said Dave Costello, the economist in charge
of the DOE report.
Nevertheless, ``we're not saying there's a shortage
impending, where people won't be able to get gasoline, but
supplies are low and there's not much incentive for refiners to
produce more,' he said.
Just a year ago, retail gasoline prices were at an all-time
low in inflation-adjusted terms. A worldwide oil glut helped send
the average U.S. retail price to 90.7 cents a gallon. Since then,
OPEC has led world producers in an agreement to trim about 7
percent of daily world oil supply. That's led to high prices for
oil and refined products.
Record Demand
Making matters worse, the government expects gasoline demand
to be up about 2 percent from last year's record, Costello said.
And that's with U.S. gasoline inventories down 11 percent from a
year ago, according to API figures.
Not to worry, said Ken Haley, chief economist at Chevron
Corp. in San Francisco, the nation's second-largest oil company
with six refineries in the U.S. ``If we've got the crude oil, it's
easy enough to make gasoline.'
The key question, Haley said, is whether supplies of crude
oil from OPEC will be sufficient. ``The world really does need
more production from OPEC just to meet current demand,' he said.
Still, the longer refiners wait for oil prices to fall, the
more capacity will be tested when they finally rush to produce
gasoline for the peak summer driving season, analysts said.
``We could see premium gasoline as high as $1.75 or even well
beyond that in the second quarter,' said George Gaspar, managing
director of petroleum research at Robert W. Baird & Co. in
Milwaukee.
And trying to replace lost production makes refineries
particularly vulnerable to unexpected mechanical shutdowns.
``A lot of refineries have been delaying maintenance to push
out more heating oil during the cold snap, so we'll probably see
some emergency situations with shutdowns of refineries during high
demand times,' he said.
OPEC has led world producers in trimming supply over the past
year, under an agreement that expires next month. OPEC oil
ministers have made conflicting statements in recent weeks about
whether the cuts will be extended.
The DOE has ``assumed OPEC will increase output by 1.4
million barrels a day in 2000,' Costello said. Even so, demand
will probably outstrip supply, causing inventories to fall even
further, he said.
So far, strong demand has sent crude oil to more than twice
what it was a year ago, recently trading at $28.45 a barrel.
``If OPEC holds things together at the March meeting, we'll
go to at least at $30 to $33 a barrel for crude oil,' said Bill
O'Grady, director of fundamental futures research at A.G. Edwards
& Sons in St. Louis. ``That means retail gasoline in June over
$1.50 a gallon.'
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