Share this story
Close X
Switch to Desktop Site

Gas Prices Head Down for Holidays

With crude supplies up and consumption down, prices hang upon Gulf tensions. A MODEST DROP

AMERICAN consumers, angry over high gasoline and heating-oil prices, may get a stocking stuffer from old Saint Oil by Christmas. Lower crude oil prices in recent weeks could lead to as much as a nickel-a-gallon drop at the pump by the holidays, analysts say.

While the situation in the Middle East remains volatile - sudden war or peace would send the market gyrating - analysts expect prices to swing in a lower range than they did a month ago.

About these ads

Moreover, worldwide supplies of crude are up while oil consumption is down. This too should lead to a modest drop in prices at the pump and heating oil depot within the next couple of weeks. ``Retail prices should come down a little as this works through the system,'' says Michael Doyle, an analyst at Computer Petroleum Corporation, a St. Paul, Minn., firm that tracks gasoline prices.

Consumers would welcome any drop at the pump. Prices at the corner service station are 30 cents a gallon higher now than they were on Aug. 1, the day before Iraqi President Saddam Hussein marched into Kuwait.

People who used to pay $15 to fill their tank are now paying $20. Consumer groups say that, for the average motorist, that amounts to about $21 a month extra for gasoline.

Compounding consumers' indignation is the fact that, even though oil and wholesale gasoline prices have dropped substantially in the past three weeks, prices at the pump have moved little.

``If you ask why are people spending less on retailing over the holidays, it's because they are filling up their cars for $20 instead of $15,'' says Edwin Rothschild of Citizen Action, a consumer group.

One reason prices haven't come down is that it takes time for the impact of lower oil prices to work through the system. Analysts also say gasoline refiners and retailers, who were squeezed when crude oil prices initially jumped, have been trying to keep them up to recoup lost revenues. Then, last week, the 5-cent-a-gallon federal gasoline tax took effect, siphoning off what small drop there was at the pump.

``The tax increase was a bite dealers had to pass through,'' says Trilby Lundberg, president of the Los Angeles-based Lundberg Survey, which tracks gasoline prices. The survey reported Sunday that the average price of gasoline remains virtually unchanged from three weeks ago - up from $1.459 a gallon on Nov. 16 to $1.46 a gallon.

About these ads

Still, experts believe there is enough softness in crude prices that retail gasoline will follow suit soon. Normally it takes six to eight weeks for cheaper crude prices to work through the system. Public pressure may force retailers to move before that.

``To keep their competitive edge, a lot of retailers are going to have to show some relief at the pump,'' says Thomas Blakeslee, an energy analyst at Pegasus Econometric Group, a New Jersey consulting firm.

All this, of course, could change with a hiccup in the Middle East. Saddam's decision last week to release all hostages sent oil prices tumbling, though they recovered somewhat by week's end. Light sweet crude is trading at about $26 a barrel - the lowest since late August and well below the Oct. 11 high of $41.

But some analysts believe the market was too euphoric over Iraq's overture. Both sides still stand turret to turret in the desert, and more troops are being sent in all the time. ``Right now the market is being duped,'' says Sarah Emerson of Energy Security Analysis. ``Hussein has said he is releasing the hostages. He has not said he is leaving Kuwait. We are going to see a lot more volatility before this is all settled.''

If the crisis were solved peaceably, analysts say oil prices could quickly drop below the $21 level they were at before the Iraqi invasion. That, in part, is because world oil supplies are at their highest level since 1981, according to the International Energy Agency. Getting members of the Organization of Petroleum Exporting Countries to agree on lower production quotas after a settlement would be difficult.

In the United States, meanwhile, consumption of both heating oil and gasoline is down.

``If there is peace, there could be a nice little glut in the spring,'' says Dillard Spriggs, president of Petroleum Analysis in New York.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.