Headline: Energy group expects low gas supply this summer

Source: Associated Press, 12 April 2001

URL: AP via www.nandotimes.com

Crude oil inventories are so low that major oil-importing countries could see a return of volatile prices at the pump during the peak summer driving season, a respected study said Thursday.

This month's cuts in production by the Organization of the Petroleum Exporting Countries are likely to exacerbate the problem, causing uncertainty for refiners who must buy crude to process gasoline and other refined products, the International Energy Agency said in its monthly energy report.

"It is widely expected that the U.S. gasoline markets will be tight again this summer. ... Consequently, price spikes through the peak demand season are a possibility to contend with," the IEA said.

The Paris-based IEA is an agency of the Organization for Economic Cooperation and Development, a club of the world's wealthiest nations.

Its forecast comes as somber news for North American motorists, who endured a sharp increase in prices at the pump only last summer. The U.S. is the world's largest consumer of petroleum products.

"We foresee not total shortages of gasoline but the possibility once again of regional supply imbalances and a lot of volatility in the market," said the report's editor, Klaus Rehaag.

"Ultimately, we'll have enough supply but it could end up in the wrong place at the wrong time, especially if there are unforeseen circumstances" such as problems with pipelines or refineries, he said from Paris.

Lawrence Eagles, head of commodity research at London brokerage GNI Ltd., said the agency's prediction of potential trouble in gasoline markets was no surprise.

"It's a valid point," he said, noting that many refineries have temporarily curtailed production due to the need for seasonal maintenance.

"There's not enough capacity producing gasoline at the moment," he said from his office in Northern Ireland.

Last spring U.S. refineries were so busy making heating oil that they were slow to shift to producing gasoline. Regional shortages of gasoline were the result, causing retail prices to spike in several parts of the United States.

However, Peter Gignoux of Salomon Smith Barney said fears of a gasoline shortage this time around were not yet justified.

"There are some legitimate worries, but I think some advocates of higher gasoline price are a little overzealous," he said.

Gignoux, head of SSB's petroleum desk in London, argued that refineries were enjoying "terrific" profit margins. "This should make refiners buy crude and make gasoline."

Analysts said it would take a few more weeks before the prospects for gasoline prices this summer became clear.

Major importers drew down on their existing oil inventories for the third consecutive month in March, the IEA said, and this contributed to a firming up of crude prices during the second half of the month.

Overall, prices fell sharply from their levels in February due to deepening fears about the American and world economies and the strength of future oil demand. The report said contracts of light, sweet crude fell by $2.44 per barrel in the United States, while contracts of North Sea Brent crude dropped by $3.13 per barrel in Europe.

Signs of economic weakness led IEA to revise its expectations for annual oil demand. It forecast this year's growth in demand to equal 1.33 million barrels per day - 6 percent less than it had predicted last month.

Oil supplies increased in March by 1 percent to 78.2 billion barrels a day. The biggest factor in the increase was Iraq, which boosted output by 530,000 barrels a day.

The United States, Mexico and Britain also made substantial increases in production.

Supplies are likely to decrease this spring, with the 10 OPEC nations other than Iraq agreeing to trim their official output by 1 million barrels effective April 1.

The IEA noted that OPEC produced 650,000 barrels a day above its March target, and it suggested that this quota busting helped keep crude prices lower than they would have been otherwise.

The IEA estimated the average world demand for oil at 77.3 billion barrels a day during the first three months of the year. It said demand would decline during the second quarter by 2.4 billion barrels, then rebound during the second half of the year.

-- Andre Weltman (aweltman@state.pa.us), April 13, 2001

Answers

Gas prices for a gallon of unleaded are up 20 cents this week in our neighborhood. Went from 1.39 to 1.59 for a gallon of unleaded. suzy

-- suzy (its suzy 2@aol.com), April 14, 2001.