U.S. Predicts 10-Cent-a-Gallon Gas Price Decline; State Not So Sure

From Times Staff and Wire Reports

The Energy Department said Thursday that gasoline prices could drop as much as 10 cents a gallon nationwide this summer--and even more in California. But state energy officials met the predictions with skepticism.

Energy Secretary Hazel O’Leary said in releasing a study ordered by President Clinton after gas prices soared to a five-year high that crude oil prices had already fallen by $2 a barrel in May and should continue dropping as Iraq resumes selling oil this summer.

“Based on market forces already observed and the absence of unforeseen circumstances, gasoline prices are expected to follow, with the average retail price dropping 10 cents per gallon by the end of summer from its spring peak,” her report says.

But Charles Imbrecht, chairman of the California Energy Commission, said the state’s gasoline prices may remain volatile because of rising consumption and new shortfalls in production at some of the state’s refineries.


“I’d like to know where you buy crystal balls, because I’d love to buy one myself,” Imbrecht said. “I hope they are right, but I would be hesitant to be quite as firm in price projections as I saw in statements of the White House and O’Leary.”

Despite higher prices, gasoline consumption in the state is up 4% this year compared with a 1% increase nationwide, Imbrecht said. He attributed the rise in California consumption to higher speed limits and motorists’ practice of topping off their gas tanks during the recent price run-up.

The average price of a gallon of unleaded gasoline continued its slow decline statewide Thursday, finishing the day down a fraction of a penny at $1.48, and off 2 cents from the $1.50 average price a week ago. The peak average price was $1.55 on May 6, Imbrecht said.

Gasoline futures on the New York Mercantile Exchange fell nearly a penny Thursday to 58.89 cents a gallon, a three-month low, after the Energy Department said demand nationwide is running 1.6% below last year and below the department’s forecast. Gasoline futures have fallen 23% since April.


But refining capacity remains tight in California, where the shortage that sent prices higher earlier this year remains acute. In fact, refining output actually fell short of daily demand earlier this month, said Jan Speelman, executive director of the Automotive Trade Organizations of California, a retail trade group with 2,000 service station members.

Imbrecht confirmed that output at two of the state’s major refineries has been impaired by maintenance and modifications required for clean-burning fuel mandated this year by the state.

Crude oil prices have also fallen, partly because of the expected return of Iraq to the world oil market. Under an agreement with the United Nations, Iraq is being allowed to sell oil for the first time since the Persian Gulf War.

O’Leary’s study concludes that gasoline prices rose this spring because of a jump in crude oil prices.


The rise in California was especially sharp because the state, which was experiencing refinery problems, uses a “clean” type of gasoline that is produced in few other refineries around the world, the study says.

The Energy Department study is separate from an ongoing Justice Department review of claims of price gouging by the oil industry.

Department officials will look further at oil companies’ increasing use of “just-in-time” inventories, the practice of keeping only enough supply on hand to meet anticipated needs, an “issue of continuing concern,” Charles Curtis, deputy energy secretary, told reporters.



Pump Watch

Retail prices in California for self-serve regular unleaded gasoline edged lower again Thursday. Daily price per gallon:

Thursday: $1.487

* June 8-9 figures not available


Source: Energy Information Administration