Crude price spike could send gasoline prices higher
August 20, 2004
WASHINGTON (AP) – Amid soaring crude oil prices, gasoline costs have been dropping. But don’t expect that to last, economists say.
Motorists can expect prices at the pump, which fell to a nationwide average of just over $1.87 a gallon last week, to level off or reverse course if crude prices remain near $50 a barrel, as they were Friday. Gasoline prices again could even edge toward the $2-a-gallon range nationwide in the coming weeks, analysts said.
Consumers also should be ready to pay more to heat their homes this winter because crude costs probably will push up heating oil prices. Natural gas prices also could rise if some industrial users shift from oil to natural gas, according to analysts.
“There’s no doubt that these prices will be affected by higher crude prices in the next couple of weeks,” said Phil Flynn, an energy analyst at Alaron Trading Corp. in Chicago.
The cost of crude oil has soared because of concerns about supply disruptions from the fighting in Iraq and worries that world producers, including Saudi Arabia, will not be able to meet demand or respond to a supply problem.
Oil prices eased somewhat Friday, with crude for September delivery falling back slightly below $49 a barrel. Still, that’s $11 a barrel higher than what crude sold for two months ago when the price was around $38 a barrel, a level at the time viewed as precariously high.
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Yet since reaching a high of $2.06 a gallon on average nationwide on May 24, gasoline prices have dropped in 10 of the last 12 weeks, according to the Energy Information Administration.
Prices are still historically high, but they have declined steadily, despite the heavy summer driving season.
Gas prices have gone the opposite direction as crude because refiners – taking advantage of the high prices this spring and early summer – ramped up production to 95 percent of capacity and greater. Imports of gasoline also increased.
At the same time, demand turned out to be lower than forecast and inventories increased significantly, analysts said.
Gasoline inventories dropped by 2.6 million barrels last week, but they were still in the upper half of the average range, according to the EIA, the Energy Department’s energy statistical agency. Last spring gasoline in storage was unusually low heading into the summer season.
“There’s plenty of gasoline on the market,” said Michael Burdette, an EIA analyst.
Burdette said that while oil prices will remain high, they likely will retreat somewhat in coming weeks. “We would expect them to settle,” he said.
If so, Burdette said gasoline prices may remain “relatively stable over the next few months” and not increase sharply as demand eases after Labor Day, traditionally the end of the heavy summer driving season.
But other analysts say with crude likely to stay above $40 a barrel, higher gasoline prices can’t help but follow. About 45 percent of the cost of a gallon of gas is attributed to crude oil costs.
“I don’t think you’re going to see the dramatic type of drop (in gas prices) that we normally see after Labor Day. These prices are going to stay strong,” said Flynn.
And if crude prices don’t retreat, or move even higher, the price of gasoline could jump 10 to 15 cents a gallon from what it is today, he said.
Officials at the American Automobile Association also predict a reverse in the recent gasoline price decline.
“Labor Day is going to be something of a watershed this year,” said Sean Comey, a spokesman for AAA-California. “What would be surprising is if gas prices don’t go up.”