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Friday February 4, 8:52 am Eastern Time

ANALYSIS-Fears rise in the West for gasoline price spike

By Rex Merrifield

LONDON, Feb 4 (Reuters) - Low northern hemisphere gasoline stocks and a heavy period of refinery maintenance in the United States threaten tight supplies and price spikes in the Atlantic basin market as the summer driving season looms, analysts say.

Output cuts agreed nearly a year ago by leading producers have all but trebled crude prices, hitting downstream margins and forcing refiners to cut throughput.

As a result gasoline inventories are down at near-record lows and stocks which would normally have been replenished over the northern hemisphere winter have remained well down from their usual levels by this time of year.

U.S. gasoline stocks at the end of January stood at 200 million barrels, eight million less than the lows seen at the end of January 1997, according to industry figures. By comparison at the same time last year U.S. inventories were 226 million barrels.

Average U.S. pump prices last month hit $1.315 a gallon -- 38 cents more than a year ago and the highest level in nine years of official U.S. government data, not adjusted for inflation.

``We have seen a lot of unscheduled outages and there also seem to be some shut-ins because of poor margins on the U.S. Gulf and East coasts,'' said David Knapp, head of the oil markets division at the International Energy Agency.

``But I don't think we're at a danger level by any means, unless there are problems with refineries.''

U.S. GROWTH FUELS DEMAND

Analysts say the low stocks and refinery turnarounds will produce a choppy market as motorists take to their cars for spring and summer trips in the United States, which consumes about 40 percent of the world's gasoline.

``Given the fact that stocks are low on both sides of the Atlantic and the U.S. economy is still racing ahead, that points to increased volatility,'' said Sat Roopra, analyst with consultants Wood Mackenzie.

U.S. consumption has been growing at an average of about two or three percent each year for the last seven or eight years and analysts said they expected this to continue -- even though higher prices might be expected to limit the increase.

Most refiners would like to position themselves for strong gasoline production going into the driving season, but poor margins at present are little incentive to increase runs.

Costlier prompt prices, based on the chance producers may reverse output curbs, has discouraged refiners from pumping out more gasoline to store for the future.

``Very few people actually physically build stocks. They'll just be scheduling their deliveries or buying further out,'' said one trader who declined to be identified. ``I don't think anyone wants to carry physical inventory in this market, because of the potential of a $50 fall in gasoline prices,'' he said.

Many plants on both sides of the Atlantic have also had to maintain maximum production of heating oil, with prices driven up by a cold spell in the United States.

Klaus Rehaag, analyst with the IEA in Paris, said as the situation with refinery outages and reduced runs continued it was likely to lead to strong price swings.

``If (increased gasoline production) doesn't happen you could end up with supply imbalances and if that happens on a regional basis then that can lead to some pretty significant volatility,'' he told Reuters.

ARBITRAGE BARRELS HOLD THE KEY

Supplies from outside the United States are expected to meet at least some of the increasing U.S. gasoline demand -- with the Gulf, East Coast and New York Harbour likely to attract supplies from Europe, which produces about 20 million tonnes more than it needs each year.

The West Coast was likely to prove more of a problem.

Some Korean and Japanese refineries are able to meet the stringent quality specifications and imports had taken a little of the pressure off, but refinery troubles in the region had pushed prices higher -- likely to prove a major issue in a U.S. election year, the IEA's Knapp said.

To attract foreign supplies, the U.S. market would need to show strong values -- and higher pump prices for consumers.

Analysts said while they expected volatility and price swings and supply difficulties, they did not foresee real physical shortages or queues at U.S. fuel stations like those seen during the 1970s oil crisis.

``If refineries don't come back from the unscheduled outages, the market should get tighter and that should get margins back up and get some of the idle refineries back on before the gasoline season really gets under way,'' Knapp said.

-- Homer Beanfang (Bats@inbellfry.com), February 04, 2000

Answers

Hmmm .... [Thanks for the article, Homer]

Low northern hemisphere gasoline stocks and a heavy period of refinery maintenance ...

`We have seen a lot of unscheduled outages and there also seem to be some shut-ins because of poor margins on the U.S. Gulf and East coasts,'' said David Knapp, head of the oil markets division at the International Energy Agency.

``But I don't think we're at a danger level by any means, unless there are problems with refineries.'' ...

Klaus Rehaag, analyst with the IEA in Paris, said as the situation with refinery outages and reduced runs continued it was likely to lead to strong price swings ...

``If refineries don't come back from the unscheduled outages, the market should get tighter and that should get margins back up and get some of the idle refineries back on before the gasoline season really gets under way,'' Knapp said.

-- Cheryl (Transplant@Oregon.com), February 04, 2000.

Thanks Homer and Cheryl,
"seem to be some shut-ins because of poor margins on the U.S. Gulf and East coasts," said David Knapp, head of the oil markets division at the International Energy Agency.

What the Heck are they waiting for, $2 a gallon Wholesale?

Public words and public actions are not "harmonious", I really want to be an optimist, but I just can't see how to resolve the conflicting information these people are giving.

-- Possible Impact (posim@hotmail.com), February 04, 2000.

Last time I bought gas, it was up $0.02 at the pump...nut much, but we are about 5,000 miles from the northeast! There is a ripple effect...

-- Mad Monk (madmonk@hawaiian.net), February 04, 2000.

This is not to brag, just inform. I filled up at a 'racetrac' station in Dallas for $1.19 today.

-- Possible Impact (posim@hotmail.com), February 04, 2000.

Possible....things are cheap here as well today $ 1.19. Calm before the storm

-- kevin (innxxs@yahoo.com), February 04, 2000.

Millicent, South Australia, Saturday 5, unleaded petrol 87.9 cents per litre (Aus). Talking to Ampol distributor who said diesel up 10 cents in last week. This is farm cropping region with big rigs and combine harvesters, fishing fleets and timber. (I won't convert to Yankee dollars 'cause I'm maths challeged...hehe)

-- Pieter (zaadz@icisp.net.au), February 04, 2000.