Fall in gas prices expected, but rise is just a jitter away
Fuel is more expensive now, but analysts expect some relief after Labor Day. Unless, that is, there's another political crisis.
By SCOTT BARANCIK
Published August 21, 2003
[Times photo: Michael Rondou]
Yasser Ghananeh changes his sign Wednesday at the Hess station at 34th Street and Central Avenue in St. Petersburg. Tampa Bay area motorists are paying 7 cents a gallon more than they did a month ago, AAA Auto Club South says.
A blackout in the Northeast and Upper Midwest temporarily knocks out seven oil refineries. A rupture in a pipeline carrying gasoline from Texas causes long lines at Arizona gas stations. In Iraq, U.S. forces rout Saddam Hussein's army but can't get the country's oil flowing at prewar levels.
Prices at the gas pump have been inching up for weeks, and unsettling events around the world have fueled fears that prices will climb even higher. Tampa Bay area drivers paid an average of $1.553 for a gallon of regular unleaded gas as of Tuesday night, up 7 cents over the past month and 19 cents since last year, according to AAA Auto Club South. But barring further problems, industry analysts say, local gas prices should begin to level out and fall soon. But how soon?
"Labor Day," predicted AAA traffic safety director Yoli Buss, "and maybe a week or two beyond."
"A month or two," said James Williams, president of WTRG Economics in London, Ark.
Labor Day is the last gasp of the summertime travel season. Afterward, demand for gasoline typically falls and prices soon follow. In addition, analysts said, gasoline produced for winter consumption is cheaper to make than summer gasoline, which is more likely to evaporate and therefore is subject to tougher environmental restrictions.
Williams said the current cost of crude oil, around $30 a barrel, is unsustainably high. At that price, he said, economies edge toward recession and oil-drilling becomes more economical in countries that don't belong to the Organization of Petroleum Exporting Countries cartel. Even wind power starts to look affordable.
Still, U.S. gas prices haven't reached the $2 per gallon that some analysts warned might follow the invasion of Iraq.
"You tend to see a lot of prognosticators go for the sound bites, but you've got to look at the fundamentals," said John Felmy, chief economist for the American Petroleum Institute, an industry trade group. "To get to $2 a gallon, with everything else constant, you'd have to get to record crude oil prices."
Most analysts agreed that last week's power failure, which knocked out oil refineries in Ohio, Michigan and Canada, would have little effect on gas prices in the bay area. Jim Smith, president and CEO of the Florida Petroleum Marketers and Convenience Store Association, said local stations get all their gasoline from refineries in Louisiana, Texas, Mississippi and the Virgin Islands. Felmy said any effect the failure might have had on local gas prices probably has been felt already.
As for the current uptick in gas prices, most experts point to a mismatch between the supply and demand of crude oil, which federal Energy Information Administration analyst Neil Gamson said accounts for roughly 45 percent of the retail cost of gasoline.
WTRG's Williams estimated that while demand for crude oil is up 2 percent over last year, the supply is down roughly 6 percent. Strife in oil-producing countries Nigeria and Venezuela, underperforming wells in Iraq and other production factors have shrunk supply. Inventories are down because refineries are waiting until prices decline before buying stock.
Though Williams predicted gas prices would begin to level out in the coming weeks, he also warned that political risks, which can affect both production and oil prices on futures markets, could change everything.
An electoral meltdown in Venezuela, further production cuts by OPEC members or a variety of other factors could change everything.
"Right now," he said, "we've got a considerable amount of political risk."
