Drop in Oil Prices Could Reach Pump Soon
By Steve Everly, The Kansas City Star, Mo.
Jul. 17–ANOTHER DAY, Another Record — for gasoline prices. But that trend is expected to be interrupted, thanks to a couple of days of lower crude oil and wholesale gasoline prices.
While average retail gas prices were going up Wednesday — to $4.11 a gallon nationally and nearly $4.10 in the Kansas City area — crude oil prices kept heading down, dropping $4.14 a barrel after diving $6.44 on Tuesday.
Crude, which started the week at $145.08 per barrel, closed Wednesday at $134.60 on the New York Mercantile Exchange. Wholesale gas prices are down this week about 25 cents a gallon in the Midwest.
The declines are due in part to more concerns about the economy, which could push demand down further, and a federal report released Wednesday that showed higher inventories of oil and gas, which gave a further push to the price declines.
“It turned the tide just a little bit,” said Steve Mosby, vice president of Admo Energy, a Kansas City firm that helps companies, including gas stations, manage the costs of their energy purchases.
Given the volatility of the past few months, however, predictions are guarded. Indeed, the oil and gas market was being viewed late Wednesday as at a point where prices could decline further or rebound and erase the lower prices of the past two days.
Just last week, the Energy Information Administration released a gloomy report that said the U.S. average for regular gas should remain above $4 a gallon until the fourth quarter of 2009. Retail diesel prices, which averaged $2.88 in 2007, are projected to average $4.35 a gallon in 2008 and $4.48 a gallon in 2009.
But prices at the pump could be poised to break below $4 a gallon, at least for a while, because of this week’s drop in oil and wholesale gas costs. The time it takes for a change in wholesale prices to reach the retail pump can vary and often takes longer when prices are declining. But it can happen in 24 to 48 hours, meaning pump prices could change any time now.
“Street prices have got to start moving,” said F.J. Cronenwett, wholesale manager of Robson Oil, a fuel distributor in the Kansas City area.
Supplies of gas used in the Kansas City area, which has a slightly different vapor pressure than fuel used in most of the country, have been tight this summer, making them more vulnerable to price spikes.
The federal report released Wednesday showed crude oil stockpiles in the U.S. had increased by 3 million barrels when they had been expected to decline. Gasoline stockpiles also increased 2.5 million barrels, putting them at the top of their five-year range. Demand for gasoline was down just over 2 percent compared with a year ago.
Demand has been soft for most of the year in the U.S. but that has had little effect on oil prices. World oil consumption continues to grow, according to the Energy Information Administration, led by China and the Middle East. World oil consumption is projected to rise by about 1.2 million barrels a day during the second half of the year.
But the federal agency added a condition that could change its predictions about world oil consumption. If “financial strains” in the U.S. spread to foreign nations, the growth in consumption would also slow there.
James Williams, an analyst for WTRG Economics, said factors could be converging to cause oil prices to decline further.
Those include a reduction in U.S. demand and the psychological effect of potentially drilling for more oil in the U.S.
But the possibility of a recession in the U.S. and a slowdown spreading to other countries would mean that even $135-per-barrel oil, which is down from its high for the year, isn’t sustainable.
“We are seeing oil tracking with economic reality,” he said.
To reach Steve Everly, call 816-234-4455 or send e-mail to severly@kcstar.com.
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