Market Price for Gasoline Eases Again
Prices of gasoline traded on financial markets came under pressure again Thursday, capping a weeklong slide that bodes well for U.S. motorists later this year--even if they don’t get immediate relief from high prices at the pump.
The lower market prices for gasoline also work to the advantage of the Organization of Petroleum Exporting Countries, because it gives OPEC more reason to hold its crude-oil production at current levels when the cartel’s ministers meet Tuesday, analysts said.
Crude prices now are in the high $20-a-barrel range, which is where OPEC wants them. Analysts speculate that with U.S. gasoline prices already slipping, the 11-member group will decide at its meeting in Vienna that there’s no need to risk sending crude and gasoline prices lower by hiking OPEC’s production.
OPEC also is sensitive to U.S. complaints about the high price of gasoline, and thus is unlikely to cut oil production, as it has done twice this year.
Slashing output a third time would invite the ire of the White House and further anger many congressional Democrats, who want the Bush administration to pressure OPEC into pumping more oil to get prices down.
“The fact that gasoline prices are easing here certainly makes it even more probable that OPEC’s production will be a rollover,” meaning the group won’t change its current daily output of 24.2 million barrels, said Heather Rowland, an analyst with investment firm UBS Warburg in New York.
On Thursday, the futures contract for gasoline for July delivery on the New York Mercantile Exchange slipped 4 cents to 94.6 cents a gallon. Gasoline for June delivery at one point plunged 5.4%, but it then rebounded on what traders said were technical factors related to the June contract’s expiration Thursday.
The June contract finished at $1.063 a gallon, up 2.2 cents on the day but still down 9.5% from its $1.175 price a week ago, which was a record high for gasoline for current delivery on the Nymex.
Prices came under renewed pressure after two reports showed gasoline supplies continuing to build. The American Petroleum Institute, the U.S. industry’s trade group, reported the eighth consecutive weekly increase in inventories. And the Energy Department’s Energy Information Administration likewise reported a buildup of supplies, notably inventories of the cleaner-burning grades required for major U.S. cities in the summer.
Those grades, and gasoline generally, have been in tight supply in recent months at the same time drivers have maintained their strong demand for fuel--which are key reasons gasoline prices have soared this spring. Oil refineries have been operating near full capacity to keep up with the demand but have only recently begun to sate consumers’ needs. And higher crude-oil prices, reflecting OPEC’s production cuts earlier this year, also are a factor.
For U.S. motorists, the recent drop in market prices for gasoline probably won’t have much effect on what they pay at the pump this summer, because those declines will take a while to work their way to the retail gasoline market. But they do provide a positive omen for price relief after the summer, when vacation travel eases, analysts said.
“Pump prices didn’t spike during the Memorial Day holiday, as was the case over the past two years. They have now stabilized and could move lower,” Phil Flynn, senior market analyst at Alaron Trading Corp. in Chicago, told Bloomberg News.
Retail gasoline prices already have started to dip from record highs in California, on reports of swelling stockpiles of fuel. Earlier this week, the EIA said the average price for regular unleaded gas in California slipped to $1.947 a gallon as of Monday, from a record $1.954 two weeks earlier.
By producing 40% of the world’s crude oil, OPEC still is a key determinant of world oil prices and, by extension, the price of gasoline. And OPEC’s two production cuts this year--which lowered its daily output by 2.5 million barrels, or 9%--were designed to keep crude prices in the $25- to $28-a-barrel range in spite of slowing economic growth among industrialized nations.
Crude oil for July delivery on the Nymex closed Thursday at $28.37 a barrel, down 18 cents.
So far, the White House has shied away from publicly urging OPEC to restore its production cuts as a way to get pump prices lower. Indeed, Vice President Dick Cheney--the former chief executive of oil services giant Halliburton Co.--recently cautioned against “jawboning” OPEC ministers to pump more oil, saying that would lead to more volatility in oil markets.
A White House spokesman said Thursday that the administration is having “quiet diplomatic conversations” with cartel members, but otherwise offered few details. President Bush also has rejected calls to repeal the federal gasoline tax of 18.4 cents a gallon as a way to help lower pump prices.
Even so, OPEC is walking a fine line between keeping the price of oil where it desires and resurrecting the anger of the United States and other nations with heavy gasoline needs, analysts said.
OPEC remains wary of producing more oil because of the worldwide oil glut two years ago that sent prices plunging and ravaged many of its members’ economies. But oil prices would drop closer to $20 a barrel were it not for OPEC’s production cuts this year, and the higher prices are doing damage to the U.S. economy, said Philip Verleger Jr., an energy economist at Brattle Group, an industry consulting firm.
“Consumers are paying, roughly speaking, $10 a barrel too much for oil, and that translates into something like 25 cents a gallon” at U.S. gas stations, Verleger said.
As usual, the swing factor in future prices is likely to be Saudi Arabia. It’s OPEC’s largest producer, accounting for 33% of the cartel’s production. “Saudi Arabia is sensitive to what is politically sensitive in the U.S., and gasoline prices are sensitive in the United States right now,” said Rowland of UBS Warburg.
The United States is Saudi Arabia’s biggest customer and a key ally, “and on both counts it can be material to Saudi Arabia if oil is becoming a hot topic in the United States,” she said.
But there’s another twist that could complicate matters. Oil exports by OPEC member Iraq are regulated by the United Nations under sanctions that allow Iraq to exchange oil for food. But Iraq is threatening to stop exports because of U.S.-British proposals to revamp the sanctions when they’re due for renewal Sunday.
Should Iraq’s estimated exports of 2.1 million barrels a day be suspended, there would be “a significant risk of a sharp price run-up” in crude oil, Rowland said. But because of the Saudis’ concern about U.S. political pressure, that threat would probably be blunted “by a Saudi Arabian-led move to replace any missing Iraqi barrels,” she added.
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Rising Supplies
U.S. gasoline inventories have resurged in recent weeks, dampening concerns of widespread shortages this summer.
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Gasoline inventories, in millions of barrels, weekly data
May 25: 206.1 million
Source: American Petroleum Institute
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Times wire services contributed to this report.
