Crude crunch could pinch gasoline buyers this summer

By KERM YERMAN

Consumers could be paying record high prices for gasoline this summer as a low supplies could tighten further due to a crunch in crude oil supply from both the U.S. and Europe, analysts said.

"Worst case scenario, gasoline at the pumps hits $2.50 a gallon this summer, best case it's $2.00," said Phillip Verleger a oil analyst with PKV LLC in California.

Gasoline futures on the New York Mercantile Exchange this week bolted past 99.0 cents a gallon Wednesday, the highest price since October 1990 when it traded at $1.00 a gallon.

Supply cuts by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers last March to cut global supply of 75 million barrels per day by 4 million barrels per day (bpd) remain the key reason for soaring oil prices. U.S. crude oil stocks for the week ending February 25 were more than 43 million barrels lower than last year according to American Petroleum Institute (API) data. But cold weather this winter in the largest heating oil consumption region in the world, the U.S. Northeast, has led refiners to maximize production of heating oil.

As a result, gasoline stocks have suffered during the time of year supplies normally pile up ahead of the driving season that commences on Memorial Day. API data this week showed U.S. gasoline stocks more than 34 million barrels below last year.

In 1997, the last time February gasoline stocks were dangerously low, U.S. refiners stabilized gas prices by raising refinery production to about 99 percent of capacity from 90 percent over a few months, to steer clear of a crisis.

But U.S. refiners were only at 88 percent of capacity for the week ending February 25, according to API, and the week before that were only at 86.5 percent of capacity.

There are two arguments as to why refiners are now running at such low capacity. Verleger says refiners simply cannot buy enough crude oil. But other analysts say the steep six cents a gallon backwardation -- where prices later in the year are cheaper than current ones -- mean no refiner wants to build supplies now and risk losing money if the market crashes.

Either way, production of gasoline this spring will suffer analysts say.

Some relief has been coming from European refiners as government data showed U.S. gasoline imports last month from European refiners was 90,000 bpd more than last year.

But that supply should wane as European refiners are headed into major maintenance this month including Exxon Mobil Corp's (XOM-N) Port Jerome, France and Royal Dutch/Shell's Pernis, Netherlands refineries.

And gasoline from Latin American producers Mexico and Venezuela could be limited by U.S. clean air regulations as many parts of the country gear up for Phase Three low sulphur regulations. "Can Latin America produce enough Phase Three gasoline," asks Verleger, "I don't think so."

"We're operating at minimum operating levels, but the tanks are not empty," said analyst Ken Miller of Purvin & Gertz. As for gasoline going over $2 a gallon this summer. "It's a possibility," said Miller. But he said volatility in prices, such as Wednesday's nearly five cent gain on NYMEX gasoline-- prodded in part by news of two refinery problems -- is the biggest danger of low stocks.

Miller said if OPEC boosts production by more than a few million barrels per day, "The market is going to drop like a rock, because prices are already high and it's been high for a long time." But he said even small crude production boosts of one or two million barrels per day could ease soaring oil prices. "Crude from Mexico only takes five days to reach the U.S.," he said.

http://www.canoe.ca/MoneyOil/mw_oilnews13.html

-- Carl Jenkins (Somewherepress@aol.com), March 02, 2000

Answers

Thanks for the info Carl.

It's not clear to me why oil prices have shot up. The cartel has tried to raise prices in the past. This one was sudden and successuful.

Fortunately, we don't have a Jerry Ford trying to WIN against inflation. Otherwise, we'd still see "Regular $.979" on the pumps but "No Gas Today" signs.

DeeCee area prices range from $1.35 to $1.45 for regular unleaded. I'm keeping my tires inflated, got new air filters for the cars, changed the oil (no surcharge at Jiffy-lube yet.), and will put in new plugs (got 50,000 on the old sets) as soon as I can find platinum plugs.

I might get a couple more MPG or I might not. I expect a few owners of big SUVs will drive their Ford Escort or Honda Civic a little more.

I already drive a very small car, 1800cc engine, fuel injected, free flow exhaust, and get over 30 mpg in mixed city/suburban driving.

We'll see. Oh, and I still have a couple jerry-cans of unleaded that I got for Y2K. I'll hold onto them for a few more months.

-- cory (kiyoinc@ibm.XOUT.net), March 02, 2000.

Use your stored gasoline now if it's winter blend. No big deal, but there is a difference.

-- Tom Beckner (becknert@xout.erols.com), March 02, 2000.

The media is psychologically preparing us for the skyrocketing gas prices and yet the NASDAQ is totally ignoring it. Its like an earthquake occured in Alaska, Hawaii knows its coming but decides to do the Nero thing and throw a big party.

I need some creative help. I need a negative connotation term for our worthless media similar to cartoon and Clinton = Clintoon that type of thing, an extremely disrespectful and yet humorous term. Can anybody help me with that? I'm looking forward to some replies because I know TB2000 has some amazingly witty and funny people out there. This is the most entertaining website I know.

-- Guy Daley (guydaley@bwn.net), March 02, 2000.

STANDARD SOBRIQUET IS "SN00Z MEDIA"

-- Squirrel Hunter (nuts@upina.cellrelaytower), March 02, 2000.