Motorists Could Face $2/gal Gasoline Soon

 

USA: September 30, 2004


WASHINGTON - U.S. drivers could again face $2 a gallon gasoline now that crude oil has topped a record $50 a barrel, government experts said.

 


U.S. crude oil futures hit an all-time high of $50.47 per barrel this week as rebel threats against Nigerian oilfields threatened supplies already pinched by hurricane-related drilling shutdowns in the Gulf of Mexico.

The average retail gasoline price is likely to rise above $2 per gallon in the next three weeks as the effect of higher crude oil prices filters through from refiners to drivers, the U.S. Energy Information Administration (EIA) said.

"Based on where your crude and spot gasoline prices are right now, I'm looking for gasoline to approach $2 a gallon," EIA analyst Mike Burdette said.

The national price for regular unleaded gasoline averaged $1.917 a gallon this week, the highest since mid-July, the EIA said in its latest weekly report. U.S. average retail gasoline prices peaked at $2.06 a gallon in late May.

"Consumers can expect another five or six cents being passed through at the retail level during the month of October," EIA analyst Jacob Bournazian said.

Pump prices will be restrained by a seasonal decline in demand for fuel, analysts said. U.S. gasoline demand peaks during the busy summer driving season.

"We're certainly in the low part of the annual demand cycle and that helps us a lot. If we had $50 crude and it was the middle of May, I hate to think what our gasoline prices would be," Burdette said.

Gasoline prices will also be muted by less strict environmental rules that went into effect in many states on Sept. 15, Bournazian said. The shift occurs each year because cleaner blends of gasoline are required to fight air pollution during hot summer months.

As a rule of thumb, gasoline prices rise about 2.5 cents for every dollar increase in crude oil costs, said Robert Ebel, who directs the energy program at the Center for Strategic and International Studies in Washington, D.C.

The price of crude accounts for about half the cost of making gasoline.

However, the oil industry's main lobbying group said higher gasoline prices are not a foregone conclusion because of $50 crude oil.

Record gasoline production and imports have kept gasoline prices soft in recent weeks amid rising crude prices, said John Felmy, chief economist at the American Petroleum Institute. "It's all going to be a function of how the gasoline market functions as well as crude," Felmy said.

Democrats renewed attacks on the Bush administration this week for failing to keep energy prices in check.

Campaigning in Pittsburgh, Democratic vice presidential candidate John Edwards berated the Bush administration's close energy industry ties and called for U.S. consumers to cut their dependence on foreign oil suppliers like Saudi Arabia.

"What are the odds that George Bush and Dick Cheney are ever going to do anything to move this country to energy independence?" Edwards asked. "It will not happen while they are in office."

President Bush is a former Texas oilman and Vice President Cheney once headed oil services firm Halliburton Co.

Firing back, a Bush-Cheney campaign spokesman blamed high prices on a broad energy bill that stalled in the U.S. Senate last year after moderate Republicans and Democrats blocked it.

"It's tragic that our economic recovery is bogged down by record energy prices that will only climb higher as winter sets in," said Republican Sen. Pete Domenici, who has led efforts to revive the bill in the Senate. "But until this Congress acts, that's what is likely to happen."

 


Story by Chris Baltimore and Tom Doggett

 


REUTERS NEWS SERVICE