Oil Analysts Hem And Haw

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Oil Analysts Hem And Haw Over When Prices Will Drop In The News: Gasoline Prices Source: St. Louis Post-Dispatch Publication date: 2000-03-30

* OPEC has agreed to boost oil production, but it is not clear by how much. It may be two months before the extra oil gets here, and there is no certainty lower prices will be passed on immediately to consumers.

* Now that the Organization of Petroleum Exporting Countries has agreed to increase production, just how much will gasoline prices fall in the United States? Nobody knows. The producing countries have been exceeding their old production limits, and the new official target may be only slightly above what is now being produced. In any case, the cheaper oil won't arrive at refineries until May.

While oil producers soon will pump more crude, it was uncertain Wednesday if the additional oil will appear in time to push down high gasoline prices for the summer driving season -- when demand even in normal times keeps prices high.

Calling the OPEC decision to boost production "good news for our economy," President Bill Clinton called on oil companies Wednesday "to do everything they can to bring the savings to consumers as quickly as possible."

The Organization of Petroleum Exporting Countries agreed to increase production by 1.7 million barrels a day, and other producers were expected to expand production as well. Crude oil prices have tripled over the past 14 months.

Spot prices for oil dropped a dollar to $26.17 a barrel Wednesday on the New York Mercantile Exchange, down from a high of $34 a few weeks ago. U.S. officials expected crude prices to continue declining, perhaps by as much as $2.50 a barrel by August. They said they expected gasoline prices to follow the price decline.

But industry officials and analysts said Wednesday that it may take six to eight weeks for the additional oil to reach the United States, and there's no certainty the lower crude prices will be passed through immediately to consumers. Refiners are still using the more expensive oil.

"It's going to be hard to get an immediate assessment of how successful this is going to be," said Red Cavaney, president of the American Petroleum Institute. He said refiners are "ramping up" gasoline production, but he acknowledged that current inventories are at the lower end of the range where they are expected to be.

"We've had record (gasoline) production in February, and we're operating at a good clip here in March," said Cavaney. But the full price impact probably will not be felt until gasoline from the lower price crude oil moves into the retail market, he said.

Airlines' ticket prices rose during the winter, in part because of the soaring price of jet fuel. So far, no one has moved to roll back the ticket prices, waiting to see what happens to jet fuel prices.

Industry experts also say there remains uncertainty about exactly how much additional oil will be put into the market. For some time, OPEC producers have been exceeding their official quotas by as much as 1.2 million barrels a day. That would mean that OPEC's decision on Wednesday actually would make available only an additional 500,000 barrels a day, analysts said.

Energy Secretary Bill Richardson said that the OPEC production agreement will produce "a stable price" for crude and predicted "gradual and modest declines" in gasoline and diesel prices. Earlier, he and other administration officials said wholesale gasoline prices could drop as much as 15 cents by July.

This week, the Energy Information Administration said average gasoline prices nationwide had dipped by 2 cents from its peak during the past week to $1.55 a gallon for all grades. The private Lundberg Survey showed a $1.59 average at 10,000 service stations it monitors.

The Energy Information Administration earlier this month had said gasoline prices could spike to $1.80 -- and even $2 in some areas -- this summer if additional oil is delayed getting into the market and perhaps even higher if refineries have problems.

The high gasoline prices continued to fuel heated political exchanges in Congress. GOP leaders in the Senate planned to consider, perhaps as early as today, a rollback of the federal gasoline tax by 4.3 cents. The tax now adds 18.4 cents to the price of a gallon of gasoline.

Richardson called the tax rollback unnecessary in light of the OPEC production increases, although the administration has stopped short of saying the president would veto such legislation.

Highway interests, and some influential members of Congress, have warned the rollback would put highway construction projects at risk.

Yet Senate Majority Leader Trent Lott, R-Miss., promised to seek a vote on the issue this week, and House Majority Leader Dick Armey, R- Texas, said that if it comes over from the Senate, the House would bring it up for a floor vote.

"Republicans are more than happy to repeal the tax," Armey said.

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=9720388&ID=cnniw&scategory=Energy

-- Martin Thompson (mthom1927@aol.com), March 30, 2000


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