Futures Price of Oil, Gasoline Drops a Bit

By Michael E. Kanell, The Atlanta Journal-Constitution

Oct. 11–For cash-strapped motorists, there is at least some hope up the pipeline: Traders have been nudging down the futures price of oil and gasoline.

If that continues, the price at the pump should go down, too. Maybe not back to where it was a year ago but perhaps at least back to pre-Katrina levels.

Although most oil production in the Gulf of Mexico is still shut down by hurricane-inflicted equipment damage — some energy sector workers still are not back on the job — the trend toward lower prices has begun.

“The futures market reflects the information they have, and the future to them looks better,” said economist Kajal Lahiri of the State University of New York at Albany.

The coming month’s price of crude oil fell 4 cents a barrel on Monday, closing the day at $61.80. The wholesale price of gasoline, which had crested at $2.92 a gallon in late August, ended the day at $1.80.

Several factors are making the short term appear a bit rosier — or at least less painful.

First, demand is down, with high prices chilling some of the American thirst for oil, according to the Energy Information Administration: During the most recent four weeks recorded, gasoline demand averaged 8.8 million barrels per day, or 2.6 percent below the same period last year.

Use of other fuels — diesel, jet fuel and heating oil — averaged 3.9 million barrels per day over the same period, 3.8 percent below last year’s level, according to the EIA.

The supply side, too, is healthier. The Bush administration has approved release of roughly 30 million barrels of oil from the nation’s strategic reserve. About the same amount is coming in from Europe.

“Without that, gas would be at least $1 more — absolutely,” Lahiri said.

While scattered outages have continued in the metro area, the vast majority of stations have continued to sell gasoline.

And Atlanta gas prices seem to have stabilized: The average price for a gallon of regular Monday was $3.01, up just a penny from the day before, according to AtlantaGasPrices.com. A year ago that average was $1.85 a gallon.

Because global production of both oil and gasoline has kept just barely ahead of demand, any threat to supplies can send prices soaring. “A shock comes, and we cannot absorb the shock,” Lahiri said.

Hurricane Katrina, which slammed through the Gulf in late August, set adrift or destroyed some oil equipment, shuttered massive refineries, and turned some workers into evacuees. A few weeks later, Hurricane Rita roared through some of the same areas.

About one-third of the Gulf’s oil platforms were still evacuated and 78 percent of oil production was offline, according to the most recent report by the U.S. Minerals Management Service.

Since Katrina struck, the Gulf has lost 50.1 million barrels of oil, 9.2 percent of its yearly production, according to the MMS. A number of refineries still are not operating at peak capacity; some are not operating at all.

In the days after each hurricane made landfall, the lack of electricity shut down pipelines that carry refined products to Atlanta and points north.

The result was worry about shortages, a two-day shutdown of most public schools to save diesel, and rising fuel prices.

But the pipelines that carry refined products — gasoline, diesel, jet fuel and heating oil — are no longer a problem. Colonial Pipeline, the larger of the two, can handle close to its full capacity of gasoline and has a “a slightly reduced” ability to carry the other fuels, said Steve Baker, spokesman for Colonial.

But supplies in metro Atlanta remain below normal, because the refineries are simply not producing as much as they usually do, he said.

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