Gas Prices Climb as Heavy Driving Season Nears : Energy: Analysts predict a rise of 5 to 15 cents a gallon. But no shortages are expected because the recession has put a damper on travel.
The Persian Gulf War is over, and the world has plenty of crude oil to go around.
But anyone who buys gasoline has noticed that prices at the pump have been creeping upward recently.
Nationally, they have edged up in seven of the past eight weeks, with self-serve regular unleaded gasoline averaging $1.138 a gallon, the American Automobile Assn. reported this week. And analysts predict that prices will climb an additional five to 15 cents a gallon as the summer heats up.
What’s going on? Simple economics, analysts say, the laws of supply and demand.
On the demand side, May signals the beginning of the summer driving season, when people travel and buy more gasoline. As demand goes up, so do prices.
On the supply side, national stocks of gasoline have fallen, for a variety of reasons, to their lowest levels in 18 years. They are hovering around the minimum levels believed necessary to keep the nation rolling--about 205 million barrels.
No shortages have developed, because demand remains below normal levels for this time of year. And even with seasonal increases in driving, most observers believe that summertime demand for gasoline this year will remain 1% to 3% below last year’s levels, mainly because of the slack economy. That lowers the likelihood that shortages will develop as the summer progresses.
Still, prices are creeping up to reflect tighter supply.
On the West Coast, supplies until recently have been more than ample, and that has kept prices generally below national averages. Even here, however, prices have started moving upward as inventories are drawn down.
In Los Angeles, self-serve unleaded gasoline sells for an average of $1.043 per gallon, according to Computer Petroleum Corp., the consulting firm that also provides price data to the AAA.
In any case, gasoline price hikes won’t cause serious disruptions if things go as expected this season, analysts say. Even with the higher prices, gasoline would remain cheaper than it was at the height of the Persian Gulf crisis last fall, if a little costlier than last summer. And inventories are thought to have bottomed out, with nowhere to go but up.
U.S. refiners should have enough production capacity to meet the bulk of the expected demand, and there should be more than enough imports of gasoline to make up the difference, analysts and federal officials said.
Of course, things could change if there is another unexpected event--particularly since the supply-demand balance is so precarious.
On the supply side, a fire that closes a key refinery, a drop in oil or gasoline imports or another crisis that threatens world crude oil supplies could send prices up sharply. On the demand side, an early end to the recession could spur an unexpectedly strong thirst for gasoline, with the same effect.
There’s a smaller chance that prices could head south. “If refineries turn up their production awfully high, or if imports increase dramatically, or if the recession holds its grip on the economy, any of those three things could send prices lower,” said Peter Beutel, an industry analyst with Pegasus Econometric Group in Hoboken, N.J.
Last month, the Department of Energy issued its best guesses for summer gasoline supplies and prices. It projected the average national price for all services and grades of gasoline rising to about $1.21 per gallon for the summer--about 5 cents a gallon above the 1990 price of $1.16 per gallon. The increase mainly reflects the new 5-cent-a-gallon federal gas tax that went into effect on Dec. 1.
Other estimates vary. Industry analysts say that prices will only increase about 5 cents a gallon. But the Washington-based consumer advocacy group Citizen Action, fearing the worst, predicts prices rising as much as 15 cents a gallon by mid-May. Disagreement centers on the availability of imports and inventories.
One thing is clear: Supplies--which normally reach their low point this time of year as refiners shut down their plants for routine maintenance--have already dipped below even traditional levels, refiners and analysts said.
In the week ended last Friday, national stocks of motor gasoline were at 204.24 million barrels, the lowest level since 1973, according to the American Petroleum Institute, the main trade group for the oil industry.
According to the API, it is the third week that gasoline stocks have rested below the 205 million barrel level set by the National Petroleum Council as the minimum operating level to prevent any kind of shortages.
For its part, the Department of Energy reported stocks a bit higher, at about 205.7 million barrels.
What’s the problem?
Imports of gasoline fell dramatically during the early part of the year. In Venezuela, a major source of foreign gasoline, refinery fires cut production. In Brazil, another major exporter, a strike idled refineries. In Europe, refiners diverted gasoline exports to their own use.
At the same time, U.S. refiners cut back on domestic gasoline production. Refineries that normally close down for routine maintenance delayed their shutdowns to crank out fuel during the height of the Persian Gulf crisis. When the war ended, more refineries than usual went out of service.
The West Coast has been a different story. At the end of January, stocks here were at 33 million barrels, compared to normal levels of about 28 million barrels, according to estimates by Atlantic Richfield Co.
West Coast stocks of gasoline accumulated in part because motorists here weren’t buying as much of the stuff as their counterparts elsewhere in the country. Also, refiners were pumping out a lot more gas.
“There has been plenty of product around since last fall, and that’s why there are such low prices on the West Coast,” said George H. Babikian, president of Arco’s refining and marketing subsidiary.
In April, when prices of self-serve regular unleaded gasoline were averaging between $1.09 and $1.14 a gallon nationally, the same fuel sold for 97 cents to $1.04 a gallon in Los Angeles.
But West Coast residents can’t expect to maintain the price advantage for long, analysts said. Inventories are already shrinking, and demand should heat up.
“I think (prices) have to at least equalize with the rest of the country” this summer, said Donald D’Zurilla, a vice president for refining and marketing at Unocal Corp.
