Pump Prices Could Fall As Oil Wavers
By James R. Healey
The price of oil — within winking distance of $100 a barrel last week — has fallen and can’t get up.
After a day of whipsaw price changes, West Texas intermediate crude oil for delivery in January closed Monday in New York at $89.31 a barrel. At the close of global electronic trading at 5:15 p.m. ET Monday, it was $89.67.
If prices continue at less than $90, gasoline retailers could afford to pass along the past week’s 20-cent drop in their wholesale prices. Gasoline is made from oil. The price of oil accounts for roughly two-thirds the price of gasoline, the latest government data say.
“At high-volume places, you’ll see 20 cents in a week or so. Other places, it might not be until after Christmas,” says Peter Beutel, veteran analyst at energy consultant Cameron Hanover.
The U.S. average is $3.061 for a gallon of regular gasoline, the U.S. Energy Information Administration reported Monday. That’s down 3.6 cents from last week but 76.4 cents more than a year ago. EIA said averages fell in all regions of the country.
Though the New York closing price of oil was a 60-cent increase from Friday’s close, the fact that it didn’t break $90 suggested a nervous market no longer convinced that oil prices have no ceiling.
“People saw a sign of weakness” when oil failed to break $100 last week after passing $99 during the trading day, Beutel says.
“You started seeing selling. Speculators who said that if it can’t print $100 after getting to $99.11, it’s no good, so sell it,” he says, and Monday’s pricing reflected that weakness.
The highest closing price is $98.18, set Nov.23. Monday’s close is a drop of 9% in just six trading days.
When oil closed Friday at $88.71, it was the first closing at less than $90 since Oct.24.
Also affecting the price: Speculation about whether the Organization of Petroleum Exporting Countries, or OPEC, will boost production when its ministers meet Wednesday in Abu Dhabi, United Arab Emirates.
The 60-cent increase from Friday is seen as a bet that OPEC won’t boost output. But oil’s unsuccessful struggle to top $90 — it got to $89.99 during trading Monday — is seen as a bet on more crude from OPEC.
Safe bet, according to Francisco Blanch, Merrill Lynch’s head of global commodity research. Based on his study of petroleum shipping plans, he said in a report Monday: “Wet freight rates have strengthened phenomenally in recent weeks. Routes from the Arab Gulf to Singapore and Japan nearly tripled in a matter of days, indicating that a substantial increase in OPEC crude oil shipments is on the way. … In addition, non-OPEC crude oil supply could also increase.”
Merrill Lynch says his views don’t necessarily represent those of the investment firm’s oil research team. (c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.