Crude oil and gasoline futures fell sharply Thursday on the possibility that federal regulators would grant waivers on gasoline formulas to California and New York, a move that could help ease prices and summer supply bottlenecks.
Responding to comments by Energy Secretary Spencer Abraham, who told Congress that the Bush administration was “seriously” considering the waiver requests, traders sent the price of gasoline for April delivery down 5.2% to $1.076 a gallon on the New York Mercantile Exchange.
Benchmark crude followed suit, falling $1.49, or 4.2%, to $34.27 a barrel on the Nymex, where the price of oil has fallen more than 10% since hitting a 13-year high of $38.18 on March 17.
“Just one statement about granting the waivers brought gasoline prices down,” said Phil Flynn, senior oil analyst at Alaron Trading in Chicago. “When the price of gasoline tanked, not only did it bring down crude, it brought down” all petroleum-related futures.
Both crude and gas futures have been trading above normal levels for months, boosted by tight supplies, as well as worries that a spate of new fuel formulas could slow production ahead of the summer driving season.
Traders believe that waiving the special requirements, especially for populous states such as California and New York, would cut the cost of making gasoline and ease supply troubles by making it easier for key markets to swap gasoline, Flynn said.
Abraham testified Thursday before the House Energy and Commerce Committee. In response to a question about California’s long-sought gasoline waiver from the Environmental Protection Agency, he said, “It’s my understanding the EPA is seriously looking at this request.”
After the market closed, however, federal officials downplayed Abraham’s statement.
“We were just reporting on the status quo at the EPA,” said Joe Davis, a spokesman for the Department of Energy. The secretary’s comments, he added, “should not be interpreted as meaning that any decision has been made or is imminent.”
An EPA spokesman said the agency was still reviewing the waiver petitions.
California has been fighting the Clean Air Act’s fuel requirements since 1999, when the state first sought permission to make gasoline without the required “oxygenate” additive of either ethanol or methyl tertiary butyl ether, or MTBE.
After discovering MTBE’s tendency to pollute groundwater, California banned its use. Refiners in the state now add ethanol instead. New York and Connecticut instituted MTBE bans that began Jan. 1.
California officials want the EPA to grant California a waiver, citing the extra cost and evidence that ethanol was unnecessary for making cleaner-burning gasoline.
When the EPA denied California’s request in 2001, the state took the agency to court, winning a ruling that forced the administration to take another look at the waiver request.
Since then, though, the EPA has not acted, despite a string of letters from legislators -- the most recent coming Thursday when Sen. Dianne Feinstein (D-Calif.) urged the EPA to immediately grant California a temporary waiver to help reduce escalating pump prices.