Gasoline Prices May Rise Soon, Analysts Say

If you’re planning to fill your gas tank this weekend, enjoy the low prices while you can.

Many oil industry experts believe that oil prices may be on the rise again, and gasoline prices, which are about 25 cents lower than they were a year ago in California, are sure to slowly follow.

Oil prices jumped more than 8% in the last week, flirting with $15 a barrel Friday in futures trading on the New York Mercantile Exchange on several factors--including evidence that OPEC members are doing better at meeting promised production cuts.

Crude oil for October delivery settled at $14.59 a barrel, down 8 cents, but up from the $13 territory where oil futures contracts had been mired for several weeks.

Still, oil prices are a long way from the $21 to $22 per barrel of a year ago, before OPEC decided to increase production and the Asian economy swooned.

Several oil industry analysts say they expect oil to gain a few more dollars by the end of the year, and every $1-per-barrel increase in oil prices translates into about 2 cents per gallon of gasoline.

Any run-up won’t be rapid and may not be immediate, especially for gasoline, whose price is also affected by seasonal demand changes, oil refinery problems and even neighborhood competition. Gasoline in California is selling for an average $1.148 for unleaded regular self-serve, down from $1.40 at this time last year.

“I think we may have seen the bottom on crude oil prices,” said Sal Ilacqua, an oil industry analyst with Rothschild Inc. in New York. “There are indications that OPEC is living up to part of its promise to cut production, plus drilling for oil in the United States has dropped dramatically, which has an impact.”

Of course, a week’s rally does not a recovery make. Some industry-watchers contend that supply disruptions in Nigeria and Russia that have helped hike the price of oil are too fleeting to address the fundamental problem of a world awash in crude oil.

That task falls to the Organization of Petroleum Exporting Countries, and evidence is growing that OPEC members are managing the bulk of the pledged 3 million barrels a day in reduced production. A Bloomberg survey released Thursday, for example, showed that OPEC members had achieved 85% of the promised cuts during August.

A meeting of oil ministers from Saudi Arabia, Venezuela and possibly Mexico set for Monday in London may not result in more cuts, but proved reassuring to the market nonetheless.

Demand is unlikely to increase soon in Asia, but the seasonal need for heating oil should begin to reduce the oversupply of oil, especially if OPEC continues to produce less, said Fadel Gheit, senior energy analyst with Fahnestock & Co. in New York.

If oil moves higher, “gasoline can only go up,” he said, noting that gas prices are lower, when adjusted for inflation, than they were during the 1973 oil price shock.

Ken Haley, manager of energy forecasting at Chevron Corp., the nation’s fourth-largest oil company, said neither oil nor gasoline prices will increase quickly, barring unforeseen disruptions such as a refinery fire.

“Gasoline prices are related to the cost of crude oil, to the supply-and-demand situation, and literally to the competitive situation on each street corner,” Haley said.

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Crude Awakening

Oil futures prices have been around $13 for the last several weeks, but rallied in the last few days on hopes that OPEC may be standing by its promises to cut production. Weekly spot crude oil prices, per barrel:

Friday: $14.59.

Source: Bloomberg News