Tuesday 1 February 2000 Analysts warn of sharp gasoline price hike

Stephen Ewart, Calgary Herald

The recent dramatic hike in crude oil prices is pushing gasoline inventories toward all-time lows and threatens to cause a spike in pump prices as the summer driving season approaches, industry analysts warned Monday.

Without swift production increases by OPEC's big oil exporters, there's little chance of a sharp decline in crude prices, a Canadian Energy Research Institute conference was told Monday.

Industry forecasts have global oil use outpacing production by two million to three million barrels a day in the first three months of this year if producers continue to restrain supply.

"In the near term, there will be higher (crude oil) prices. We could go another three or four months," said Adam Sieminski of Deutsche Banc in Washington.

"Without additional supply, we'll have problems, especially for gasoline in April and May."

The problems could include higher pump prices and possible shortages of gasoline, said Sieminski, although he did not provide any price projections.

Crude climbed 42 cents Monday to $27.64 US a barrel on the New York Mercantile Exchange.

Canadian industry officials acknowledged gasoline prices have edged up with the price of crude but also cautioned about overstating those fears.

"Our members believe there is a considerable amount of speculative pressure on the price of crude right now and we think there is sufficient supply out there," said David Collins, president of the Independent Retail Gasoline Marketers Association.

The association represents about seven per cent of Canadian gasoline retailers.

Shell Canada said it doesn't anticipate problems with feedstocks for its refineries while Imperial Oil Ltd, Canada's largest refiner and retailer of gasoline, said it is premature to speculate about the price of crude or gasoline in three or four months.

However, consumers did feel the impact of high crude prices Monday.

Air Canada and Canadian Airlines announced all U.S.-bound travellers will be pay a $27 round-trip surcharge on tickets to counter rising jet fuel costs due to higher crude prices.

Mehdi Varzi, director of oil and gas research at Dresdner, Kleinwort Benson in London, told the Calgary conference he agreed with the potential for higher gasoline prices but also sounded a note of caution.

"Nobody thought in six months, from April to September last year, that prices could double, well why can't they (be cut in) half," said Varzi. "I'm not saying they will . . . but there is a scenario in which they could come down quite substantially."

Indeed, both Varzi and Sieminski said they don't believe crude prices approaching $30 a barrel can be sustained over the long term.

The key to lowering prices is to increase production from members of the Organization of Petroleum Exporting Countries, they said.

"Inventories are being drawn down. OPEC has to add production or prices are going to skyrocket," Sieminski said.

"We have had oil at $30-$40-$50 in the past and it could do that again simply on the likely consumer panic that would be associated with not being able to get enough gasoline."

While Sieminski warned of the potential of $50 oil, he cautioned his forecast for West Texas Intermediate crude in 2000 is an average of $21 a barrel.

Varzi agreed: "Based on history, these prices are not sustainable, they create forces that react on the other side to bring them down."

OPEC, along with Norway, Mexico, Oman and Russia, agreed last March to cut global oil supply by seven per cent for one year to deplete oil inventories and boost prices that had dropped below $10 a barrel in December 1998 to a 12-year low.

There is now a chorus of people complaining that oil prices are too high -- especially politicians in the United States seeking to appeal to voters in an election year.

The United States has a strong voice with producers since it consumes about 18 million barrels of oil a day -- a fifth of the world's crude production.

Varzi said OPEC may not be inclined to turn back up the taps until they have recovered from the price woes of 1998 and early 1999 and some members of the cartel have signalled they want the cuts extended.

OPEC ministers have their next meeting in Vienna on March 27.

"Ultimately, OPEC in its own self-interest, get together and add production, Varzi said. "They know their market share is very vulnerable if prices stay high like this."

< a href="http://www.calgaryherald.com/news/stories/000201/3525571.html"> Analysts warn of sharp gasoline price hike

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-- Teague Harper (tharper@cyberhighway.net), February 01, 2000

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Analysts warn of sharp gasoline price hike!

-- Teague Harper (tharper@cyberhighway.net), February 01, 2000.

2000-02-01 17:40:54 EST

***API REPORT STUNS TRADERS WITH HUGE CRUDE STOCK DROP

2/1 - - API statistics released this evening exceeded the expectations of even the most bullish oil traders, and have sent prices for crude and products up sharply in after hours activity.

API stunned the trade with crude stock numbers that show a 10.4-million bbl inventory drop to just 281.1-million bbl. A small build was forecast by analysts and stocks actually dropped by more than 12-million bbl in all areas in the Rockies and east. Only a West Coast build kept the number at the 10.4-million bbl level. Crude oil immediately traded some 40cts bbl higher in the after hours ACCESS session, rallying to $28.65 bbl for the March WTI contract.

Products stock figures were overshadowed by the crude numbers. Distillate stocks dropped by 2.4-million bbl to 112.2-million bbl, compared with last year's number of 150-million bbl. Gasoline stocks advanced by 1.4-million bbl, but that was a nominal build considering the diminished demand due to harsh Winter weather.

After hours trading saw unleaded gasoline futures up 0.83cts gal at 78.50cts gal for the March contract. Heating oil futures were ahead 0.91cts gal to 78.10cts gal. Refinery runs bounced back nominally with utilization rising some 2% to 87.7% of capacity. Processors are still making considerably less gasoline than they made last year, however.

While the market moved higher after the release of the data, many traders remain cautious. They predict that price escalation will be sustained or furthered only if DOE data released tomorrow verifies the huge crude draw.

========================================= End

Ray

-- Ray (ray@totacc.com), February 01, 2000.

The United States has a strong voice with producers since it consumes about 18 million barrels of oil a day -- a fifth of the world's crude production.

I love it. This is the same as saying that the biggest addict has a strong voice in how much he pays his dealer.

-- rocky (rknolls@no.spam), February 01, 2000.

Oh darn, prices seem to increase, just when I was thinking of using up my stored fuel...I'll have to rotate maybe half of it, and simply use up the rest...

-- Mad Monk (madmonk@hawaiian.net), February 02, 2000.