For Educational/Research Purposes Only!

Gas prices likely to skyrocket
JOSH P. HAMILTON
BLOOMBERG NEWS

NEW YORK -- Motorists may have an unpleasant surprise at the pumps this summer -- record prices.

Retail gasoline rose to a nine-year high in the last week of January, during the fuel's slowest period of demand, and government and private forecasters alike predict that unusually low inventories will lead to soaring prices by the time the vacation driving season gets under way at the end of May.

"Come Memorial Day, you could see all-time high gasoline prices unless there is a very dramatic effort by refiners to increase supply," said Tom Blakeslee, an oil and gas trader at Eildon Marketing LLC in White Marsh, Md.

Problem is, refiners may not make that effort.

"Inventories are low and crude oil is too expensive to buy and run through refineries at normal rates," said Marianne Kah, chief oil economist at Conoco Inc. in Houston, the nation's fourth largest oil company and operator of four refineries in the United States.

Refiners have resisted increasing purchases of crude oil to make gasoline because oil prices have risen more than motor fuel over the past year, and that's keeping their profit margins low. Crude oil futures on the New York Mercantile Exchange have rallied 144 percent from a year ago, while gasoline is up only 126 percent.

What's more, a cold spell last month raised heating oil prices and profits -- the futures market is up 150 percent in the past 12 months. That encouraged refiners to keep production focused on heating fuel instead of gasoline. By this time of year, they're normally switching over to make more gasoline.

Added to that, the Organization of the Petroleum Exporting Countries has been restricting the flow of crude oil, the fuel's raw material, in order to eliminate a surplus.

The result: plunging inventories.

LOW SUPPLIES

U.S. gasoline inventories stand at 200 million barrels, the American Petroleum Institute said recently. Inventories haven't been that low at the end of any January over the past 15 years. And with U.S. stockpiles normally reaching a peak in January or February, prospects for steep declines in fuel supplies -- and higher prices -- are real.

Nationwide, the average retail gasoline price rose to about $1.32 a gallon the first week in February, the highest since December 1990, the government said.

"This spring, assuming the crude oil price path holds, regular unleaded self-service retail motor gasoline prices will likely be at their highest level ever," the U.S. Department of Energy's Short-Term Energy Outlook said Thursday.

"Prices at the pump are projected to peak at around $1.40 per gallon during the height of the driving season," the report said. "However, in real terms (adjusted for inflation), the projected price will be about 20 percent lower" than the highs during the Persian Gulf War in late 1990.

Even so, "motorists can expect to pay about 20 cents per gallon more this driving season [April-September] than they did during the same period last year," the report said.

SUPPLY DISRUPTIONS

Should gasoline inventories fall to around 185 million barrels, there's a "high probability of distribution problems, meaning shortages," said Dave Costello, the economist in charge of the Energy Department report.

Nevertheless, "we're not saying there's a shortage impending, where people won't be able to get gasoline, but supplies are low and there's not much incentive for refiners to produce more," he said.

Just a year ago, retail gasoline prices were at an all-time low in inflation-adjusted terms. A worldwide oil glut helped send the average U.S. retail price to 90.7 cents a gallon. Since then, OPEC has led world producers in an agreement to trim about 7 percent of daily world oil supply. That's led to high prices for oil and refined products.

RECORD DEMAND

Making matters worse, the government expects gasoline demand to be up about 2 percent from last year's record, Costello said. And that's with U.S. gasoline inventories down 11 percent from a year ago, according to API figures.

Not to worry, said Ken Haley, chief economist at Chevron Corp. in San Francisco, the nation's second-largest oil company with six refineries in the United States. "If we've got the crude oil, it's easy enough to make gasoline."

The key question, Haley said, is whether supplies of crude oil from OPEC will be sufficient. "The world really does need more production from OPEC just to meet current demand," he said.

Still, the longer refiners wait for oil prices to fall, the more capacity will be tested when they finally rush to produce gasoline for the peak summer driving season, analysts said.

"We could see premium gasoline as high as $1.75 or even well beyond that in the second quarter," said George Gaspar, managing director of petroleum research at Robert W. Baird & Co. in Milwaukee.

OPEC has led world producers in trimming supply over the past year, under an agreement that expires next month. OPEC oil ministers have made conflicting statements in recent weeks about whether the cuts will be extended.

The Energy Department has "assumed OPEC will increase output by 1.4 million barrels a day in 2000," Costello said. Even so, demand will probably outstrip supply, causing inventories to fall even further, he said.

So far, strong demand has sent the price of crude oil to more than twice what it was a year ago, recently trading at $28.45 a barrel.

"If OPEC holds things together at the March meeting, we'll go to at least at $30 to $33 a barrel for crude oil," said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis. "That means retail gasoline in June over $1.50 a gallon."

Link



-- Maher Shalalhashbaz (mahershalalhasshbaz@mail.com), February 14, 2000

Answers

March Crude as of 2:30pm EST is at $30.07 per barrel.

Ray

-- Ray (ray@totacc.com), February 14, 2000.

And my truck only gets 13 mpg...

On a good day.....

Going downhill....

With the wind behind it...

Here in Western Connecticut I saw numerous stations at; reg. $1.51, mid $1.61, ultra $1.71.

Our Governer is proposing a $.07 a gallon tax decrease on gas. At least that's in the right direction.

Oil is @ $30.07 a barrel right now in intraday trading.

Drive on!

On good day.....

Going downhill....

With the wind behind it...

Here in Western Connecticut I saw numerous stations at; reg. $1.51, mid $1.61, ultra $1.71.

-- Scottsworth (NewEnglander@Ct.com), February 14, 2000.

I wonder how this squares with the percentage of capacity that is scheduled to be down for maintenance, in addition to units down for unplanned maintenance and repairs:

"Not to worry, said Ken Haley, chief economist at Chevron Corp. in San Francisco, the nation's second-largest oil company with six refineries in the United States. "If we've got the crude oil, it's easy enough to make gasoline.""

According to Bloomberg, a lot of planned maintenance coming up real soon, now, including three Chevron locations:

http://quote.bloomberg.com/news2.cgi?T=energy_refout.ht&s=76556944

Refinery Outages Mon, 14 Feb 2000, 2:47pm EST

Refinery and Pipeline Outage Update for Feb. 14

Princeton, New Jersey, Feb. 14 (Bloomberg Energy)-- The following refineries and pipelines were reported at reduced capacities: *T

Capacity Date Restart Company Company Location Unit ('000b/d) Down Date Event Confirm Equilon Wood River,IL Cat Crack 45 2/14/00 3/1/00 P Yes Equilon Wood River,IL Crude 190 2/14/00 3/1/00 P Yes Sunoco Toledo, OH Crude 70 3/2/00 4/11/00 P Yes Sunoco Toledo, OH Cat Crack 60 3/2/00 4/11/00 P Yes Marathon Catletsbrg,KY Crude 43 2/5/00 NA P No Hess St. Croix,VI Crude 100 2/2/00 NA P Yes Clark Blue Isl.,IL Vacuum 35 1/29/00 2/14/00 U Yes Valero Texas City,TX Resid 78 5/1/00 5/16/00 P Yes Valero Paulsboro,NJ Crude 50 3/15/00 4/12/00 P Yes Valero Paulsboro,NJ Cat Crack 47 3/15/00 4/20/00 P Yes Valerp Paulsboro,NJ Alky 11 3/15/00 4/22/00 P Yes Valero Crp Christ,TX MTBE 18 11/1/00 11/15/00 P Yes Valero Crp Christ,TX Hydrodes 82 10/1/00 10/19/00 P Yes Valero Texas City,TX Crude 88 10/1/00 10/25/00 P Yes Chevron Richmond,CA Reformer NA 4/15/00 4/22/00 P No Chevron Richmond,CA Jet NA 4/1/00 4/20/00 P No Chevron El Paso, TX Crude NA 3/1/00 3/25/00 P No Chevron El Paso, TX Reformer 17.7 3/1/00 3/25/00 P No Chevron El Segundo,CA Diesel NA 2/28/00 3/20/00 P No Chevron El Segundo,CA HC NA 2/14/00 3/15/00 P No Chevron El Segundo,CA Isomax NA 2/14/00 3/3/00 P No Chevron El Segundo,CA Hydro Plt NA 2/14/00 3/3/00 P No Clark Lima, OH Cat Crack 36 1/21/00 1/27/00 U Yes Chevron Richmond,CA Reformer NA 1/20/00 2/27/00 P No Exxon Beaumont,TX Coker 45.4 1/30/00 2/27/00 P No P=Planned maintenance, U=Unplanned maintenance *T

---------------------------------------------------------------------- ---------- ) Copyright 2000, Bloomberg L.P. All Rights Reserved.

end quoted material.

We have current distillate shortages, projected gasoline shortages, current refinery output at the lowest level since 1993 according to API, but the Chevron economist says no problem as long as they have crude. Maybe he's thinking about the third quarter of the year. The topic at hand is the second quarter.

No more ruptured pipe lines would also be a plus.

-- Tom Beckner (tbeckner@xout.erols.com), February 14, 2000.

Excellent post. I do believe, however, that the Northeast is already ahead of the price curve. Here in Central CT, I have seen Mobil 87 Octane Regular as high as $1.57 and Shell 92 Octane Premium well over $1.70 per gallon. Heating oil last week at $1.95 per gallon retail.

The rest of the nation may indeed find this shocking. Here in the Northeast, it is old news.

BTW...I'm not holding my breath waiting for this filthy, jaded, decadent, liberal state to lower ANY taxes. Even if they did, the gas stations would conveniently raise the prices to mop up what little gravy the state decided to leave behind.

-- Irving (irvingf@myremarq.com), February 14, 2000.