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Despite World Oil Aplenty, Gas Prices Are at High Levels

Some activists see greed in oil companies, but analysts say last winter's cold weather helped tighten gasoline supplies

PRICES at the gasoline pump, at their highest level in a year, will likely remain strong through the July 4th holiday. But don't put the Winnebago away for good: They might drop a few cents by Labor Day.

``I'd expect them to stay pretty much where they are through the Fourth,'' says Michael Doyle of Computer Petroleum Corporation, a St. Paul, Minn., firm that tracks energy markets. ``After that they may back off.''

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In theory, they probably should have backed off already. There is currently oil aplenty on the world market, which has helped keep petroleum prices low the past couple of months.

None of this, however, has been reflected in lower gasoline prices. Indeed, prices at the pump are near their highest levels since May 1989, when they racheted upward after the Exxon Valdez oil spill.

Normally, gas prices do go up in the summer because of increased consumption. June through August are the biggest driving months. Yet demand for gas so far this year has been lower than expected.

So what's going on here?

Consumer activists smell an element of greed. ``With crude prices low, the oil companies will seize the opportunity to keep prices at the pump high, which maximizes refinery profits,'' says Edwin Rothschild, energy specialist with Citizen Action, a consumer group.

But analysts say things are not so simple. Even though there has been a glut of crude oil, gasoline stocks have been in tight supply: Inventories at the refinery and bulk terminal level are 3 million gallons below what they were a year ago.

This is partly because of the unusual cold much of the United States experienced - including Florida - last winter, which depleted heating-oil stocks. When refiners went down for routine maintenance and the switchover to making gas this spring, repairs took longer than usual.

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In recent years demand for gasoline in the US has also remained strong, some 300 million gallons a day, and companies have not added much new refining capacity.

``There is plenty of oil behind the dam,'' says Peter Beutel of Merrill Lynch. ``We are just not turning it into gasoline fast enough.''

Pollution-control standards that took effect last year in Northeastern states, forcing refiners to reduce the volatility of gasoline, require more oil to produce the same amount of gas. Moreover, says Sarah Emerson, an analyst with Energy Security Analysis, a Washington, D.C., consulting firm, refiners have been buying heavier grades of crude because it's cheaper. Heavy oil doesn't produce as much gasoline.

The result of all this has been a 3-cent rise in the price of gas since Memorial Day, according to a survey released this week by the American Automobile Association. That leaves the average cost of a gallon of gas (which includes all grades at both self-serve and full-serve pumps) at $1.16 - the highest since the spring of 1989 but far below the boutique prices of the early 1980s, when it hit $1.38 a gallon.

The rises are not expected to be enough to keep people from driving. If consumption of gasoline is down this year, as several indicators suggest, analysts say it is more because of a slowdown in the US economy and low airfares than sticker shock at the pump.

Prices at the pump, moreover, have eased a bit recently. The most recent Lundberg Survey, which checks prices twice monthly at 13,000 stations, showed the average price down a half cent. Similarly, Computer Petroleum Corporation's weekly national survey was off a penny last week.

But analysts don't expect that downward trend to hold. Even if travel isn't as heavy on July 4th this year - largely because the holiday comes in midweek - retailers rarely lower prices before the holiday.

``There don't seem to be indicators of either a big drop or a big hike immediately,'' says Trilby Lundberg, publisher of the Los Angeles-based Lundberg Survey.

As the summer wears on, prices could edge down. Most refineries have clattered back to life after their spring cleaning, and consumer demand will tail off as the Rand McNally atlases are put away for the year. Thus, says Kevin Lindemer of Cambridge Energy Research Associates, prices could fall by as much as a nickel a gallon by Labor Day.

The big unknown is the Organization of Petroleum Exporting Countries (OPEC). Several members have been urging a reduction in the output of crude, which would cut the surplus of oil and drive up prices. But there has not been much discipline in the ranks so far. The issue will come up at OPEC's July meeting.

``Things are very clear,'' concludes Mr. Doyle of the gasoline outlook. ``It's called confusion.''

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