Posted on 03/20/2004 6:16:43 AM PST by Brilliant
HOUSTON, March 17 — Anyone who has not been shocked by the rapid climb in retail gasoline prices, to record levels in some cities, may want to prepare for what is to come. The fear of disruptions in oil supplies and stricter environmental regulations are expected to push prices at the gas pump even higher this spring and summer.
The Energy Information Administration said Wednesday that gasoline supplies declined by 800,000 barrels last month, to 5 percent below the five-year running average. That lifted the price of next month's gasoline futures contract on the New York Mercantile Exchange nearly 3 percent. Crude oil increased nearly 2 percent, to a 13-year high.
Earlier in the month, the agency, part of the federal Department of Energy, warned that gasoline prices might rise to a nationwide average of $1.83 a gallon in April, well past the previous record — not adjusted for inflation — of $1.747 a gallon in August 2003. Retail gasoline prices have already climbed more than 15 percent this year, to $1.72 a gallon on average nationwide. In California, the average is $2.10 a gallon, the energy agency said.
Gasoline prices in New York and Connecticut and several other Northeastern states might approach California levels in the weeks ahead, analysts at AAA, formerly the American Automobile Association, said. These states require the sale of low-emission fuels similar to those in California.
Crude oil prices, the most important factor in the price of gasoline, are expected to remain high, perhaps to climb still higher, as concern grows over the possibility of disruptions in the oil industry of Venezuela, one of the largest suppliers to the United States. The price of oil has risen 20 percent since September, settling yesterday at $38.18. After adjusting for inflation, though, the Energy Department says that oil and gasoline prices today are well below what they were in the early 1980's, early in the eight-year war between Iran and Iraq, both then significant oil-producing nations.
The price of gasoline, jet fuel and other petroleum products has risen fast enough and far enough to become a political issue. On Monday, Senator Barbara Boxer, Democrat of California, and Representative Mike Thompson, Democrat of California, called on the Bush administration to stop stockpiling crude oil in the nation's Strategic Petroleum Reserve. Doing so, they said, would ease demand for oil and help to moderate prices.
Tension between the Venezuelan government of President Hugo Chávez and his domestic opponents has weighed on oil markets that were already under some strain from surging demand in China, the slow recovery of Iraqi exports in the violent aftermath of the Iraq war, and signs of renewed assertiveness in OPEC.
"Our cowboy mentality has failed us miserably in Venezuela," said Fadel Gheit, an energy industry analyst at Oppenheimer & Company in New York. "We could have pumped up Chávez to be our back-alley oil reserve, but instead we squandered our attention and resources elsewhere. We're paying for having botched Venezuela."
Venezuela is a member of the Organization of the Petroleum Exporting Countries, which is pressing forward with production cuts announced in February at a meeting in Algiers and is scheduled to discuss further action on output levels when it meets at the end of this month in Vienna.
The Venezuelans, among the largest OPEC producers, have been an outspoken supporter of high prices. And Saudi Arabia, the largest oil producer and the force behind OPEC, has shaken markets by confirming in recent days that it has in fact made some of the cuts previously agreed to.
If concern with global oil supplies were not enough, other important factors are contributing to higher gasoline prices. The most prominent may be the need for refineries to comply with environmental regulations aimed at cleaner-burning gasoline, which have been carried out in piecemeal fashion throughout the country in recent years.
The rule changes have resulted in more than 20 gasoline formulations being introduced in cities and states, up from just regular and premium in many states 20 years ago, according to the National Association of Convenience Stores. The association's members sell about three-quarters of the nation's gasoline.
New regulations in New York and Connecticut, for instance, will require ethanol to be used as a substitute this spring for methyl tertiary butyl ether, a substance referred to as M.T.B.E., that makes drinking water smell like turpentine. Spikes in prices may result because the two states import much of their gasoline from refineries in Europe, where supplies are said to be short on ethanol, an additive made from corn or sugar.
Supplying custom-blended fuel to New York and Connecticut may also result in higher prices in neighboring states, since nearby refineries will have to focus on getting their mixture right, limiting their capacity to produce other blends of gasoline. The gasoline transportation system is being stressed by the need to deliver many different types of gasoline by pipeline, truck, rail and barge.
"We're crossing our fingers that prices don't go higher," said Jeff Lenard, spokesman for the National Association of Convenience Stores. Mr. Lenard said these stores usually suffer from gasoline price increases because drivers have less money to spend on other items. Selling gasoline is also a relatively low-margin activity; in 2002, the last year for which statistics are available, gasoline sales accounted for 62 percent of total convenience store sales but just 40 percent of profit.
There are other, more technical reasons gasoline prices might rise, including problems at refineries. Several refineries around the country have shut in recent weeks, including two catalytic cracking refineries in Texas operated by Valero Energy and Shell Oil. Technical problems were reported at several refineries in California, according to A. F. Alhajji, an energy economist at Ohio Northern University who monitors refineries.
To be sure, the current concern over gasoline prices is coming after years when the United States has had some of the cheapest fuel costs in the industrial world — largely because gasoline is not taxed as heavily in this country as it is in other nations.
But then, because gasoline is cheaper in the United States, rising crude oil prices or tight refinery capacity tend to produce relatively bigger price swings. Without adjusting for inflation, prices are at a record by some measurements, with the average nationwide price of gasoline climbing in recent days to $1.77 a gallon for all grades, a 26-cent rise so far this year, according to the Lundberg survey of 8,000 stations released over the weekend.
And few economic trends point to a relief in prices during the warmer weather of the months ahead, a period when drivers take longer road trips. The decline of the dollar against the euro has increased the domestic price of gasoline products originally set in euros, supplies that were processed in Europe.
Similarly, the rising cost of European vacations for Americans may persuade many people to stay closer to home this summer and opt for vacations by car. That would increase domestic demand for gasoline even further, pushing prices still higher.
The move in the Senate last week seeking to halt the purchase of oil for the Strategic Petroleum Reserve did cause crude oil prices to ease for several days. Other factors that could lead gasoline prices to decline, including commodity speculation or an easing of tensions in Venezuela, have yet to happen.
Yet few market analysts see higher energy prices affecting the behavior of drivers.
"Americans have created a lifestyle that requires regular driving," said Geoff Sundstrom, a spokesman for AAA. "That means the drag on the economy could show up in other ways, like fewer purchases of other items while people go on buying gasoline."
Killed by all the "Good Little EnvroRATS1"
I did and still no mention by you of the fact that your friends Daschle and Co. have blocked Bush's energy bill.
Have you been in a coma for 3 years?
Rememmber "jumpin" Jim Jeffords and the Daschle obstructionist regime?
The House is there.
The Senate needs to be swept clean.
How the heck does a president "allow" prices to go one way or another? The man's power is boundless!
There's alot of refining capacity offline now as they do the spring turnaround. From what I've seen crude supply/price isn't the main factor behind the gas price spike.
The only thing that's changed politically since we've had lower energy (not only gasoline but all energy) prices is...the Presidency
Not if there's cheaper (guest worker) labor available they won't. But that doesn't guarantee lower energy prices...
If American companies hiring Americans meant lower prices/higher profits we wouldn't have outsourcing.
It may take $5 a gallon gas to get the people motivated.
In current dollars, the proce of gas in 1979 was $4 a gallon and in the 1920s it topped out at $10 a gallon.
Why are we so concerned when demand for gas drives the price up 10 or 20 cents?
People buy bottled water by the case and pay a lot more per gallon and I don't see the anger there.
I've done very well owning shipping companies, MCX, OMM and NAT.
The middle man always makes the best profits.
Own some XOM and the 2.5% dividend will pay for the increase in gas prices.
Absolutely true. OPEC production is being artificially constrained in order to influence the US election.
This is a much stronger and yet more subtle means of influencing the election than the bombings in Spain. The Saudi's would greatly prefer a Kerry victory so the US can return to being a patsy--financing the militants who attack us.
Kerry is the one who will trade blood (US victims of terror) for oil.
A few years back, I saw the CEO of BP interviewed on TV. He said the largest oil reserves in the world were right out there in the Gulf of Mexico. But, nobody wants to see an oil rig when they go to the beach. That, on top of fears of oil spills, and there it sits, untapped.
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