Prices expected to come down, but when?

Posted: Thursday, March 30, 2000

WASHINGTON (AP) -- Motorists coping with high gasoline prices might not see lower pump prices for months as a result of OPEC's increase oil production. Even then, cheaper gasoline might not come in time for the busy summer driving season.

But Energy Secretary Bill Richardson, in an interview Wednesday, said he is convinced the new production levels will offer gradual and modest reductions in prices during the summer.

He also dismissed as ''flat wrong'' assertions by some congressional Republicans that OPEC's decision Tuesday was too modest to seriously influence prices.

The department's own statistical agency estimates that gasoline, now averaging $1.55 a gallon nationwide, likely will cost about $1.42 per gallon by summer's end. Richardson believes those projections are conservative and he cited prices on the futures market that suggested wholesale gas prices would decline as much as 15 cents by July.

Whatever happens, drivers are feeling the pinch now -- and unhappy about it.

Cab drivers in Washington said the higher prices were eating into their income.

College student Aaron Druck, who drives a Jeep Grand Cherokee, complained that he now must spend $40 to fill up. But he will not give up his vehicle.

President Clinton said OPEC's increase was ''good news for our economy.'' At a news conference, he urged oil companies ''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 to fill a 2-million-barrel-a-day shortfall that has tripled crude prices over the last 14 months.

Spot prices for oil dropped 64 cents to $26.45 a barrel Wednesday on the New York Mercantile Exchange. It has declined from a high of $34 a few weeks ago in anticipation of the OPEC production increase. U.S. officials expected crude prices to continue declining, perhaps by as much as $2.50 a barrel by August and said they expected gasoline prices to follow the price decline.

But industry officials and analysts said Wednesday it may take six to eight weeks for the additional oil to reach U.S. markets and it is not certain that the lower crude prices will be passed through immediately to consumers. Refiners still are 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.

The full impact on prices probably will not be felt until gasoline from the lower-priced crude oil moves into the retail market, he said.

Airlines passengers, meantime, have seen ticket prices climb by as much as $40 as carriers struggle with more expensive jet fuel.

Industry experts said there remains uncertainty about exactly how much additional oil will be put into the market since OPEC producers for some time have been exceeding their official quotas by as much as 1.2 million barrels a day. That would mean the 10-core OPEC countries decision reached late Tuesday actually would make available only an additional 500,000 barrels a day, analysts said.

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 EIA 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.

Meanwhile, the high gasoline prices continued to fuel heated political exchanges in Congress where GOP leaders in the Senate planned to consider, perhaps as early as Thursday, a rollback of the federal 18.4-cent gasoline tax by 4.3 cents.

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.

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On the Net: Energy Information Administration: http://www.eia.doe.gov



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