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."
Personally, I believe that there are more serious questions to ponder than gas prices right now. I will not now or ever play the "let's be nice to terrorists and their financers because the price of gas is too high and they are in total control" game. Nor will I have a whole lot of respect for anyone, Freeper or not, who plays that game, even by implication.
I love these doomsday scenarios that always begin with the word "if".
If frogs had wings...
Makes for entertaining movie scripts but are worth zero as a basis for energy policy. Some people really believe they sound profound...
Convenient of you to exclude the small details like 9/11 and the war on terror. Why would you exclude these obvious factors of change???
Nice trick, not "adjusting for inflation". Adjusted for inflation, I was paying about $4 a gallon back in the 70s. I wonder if the NY Slimes doesn't adjust for inflation when they set their advertising rates?
And if we go back exactly one year, or exactly two years, or exactly 3 years, we will find the exact same stories in the Times. Gas prices always jump in the spring when refineries need to start batching multiple custom blends for different regions because of the crazy EPA regulations. Those multiple blends drive the refining and distribution costs through the roof.
Where I live gas is down to $1.67 a gallon from a high of $2.20 under clinton/algore. This article doesn't make any sense.
It's just like GDP being higher during Bush's term than clinton/algore's GDP but the 90's had a better economy.
There is natural gas, enough to power Chicago for 20 years; North Slope natural gas is still iffy in terms of cost versus price. Alaska oil is already peaked. Don't bother to invoke ANWR or Caspian: neither is more than a blip in the oil supply.
Or we could just ride bicycles...
Silly me. I thought we had a Republican majority...Besides where is it written "the Bush energy plan" (no one seems to know what that is except for drilling in Alaska) would be the end all to our energy woes?
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