Peak Oil News: Suspicion Surrounds Retreat In Gas Prices, Poll Finds

Thursday, October 12, 2006

Suspicion Surrounds Retreat In Gas Prices, Poll Finds

By Steven Mufson

Gasoline prices are down about 75 cents in two months, but whether motorists will see further declines at the pump depends in part on whether the Organization of the Petroleum Exporting Countries can agree to cut production.

Members of the oil cartel have been negotiating to cut the group's output by 1 million barrels a day -- a move that could drive up oil prices and reverse the trend at the pumps. But most oil traders and experts doubt OPEC can achieve more than half the proposed reduction. A failure to cut output could keep supplies strong and oil and gas prices soft.

Pump prices -- now at a national average of $2.28 a gallon for regular unleaded -- already have fallen because of a slowdown in U.S. demand, a buildup in crude oil and gasoline inventories, the end of the summer driving season, a collapse in profit margins at oil refineries and a $17-a-barrel drop in crude oil prices since August.

"The supply was coming back, and I think consumers cut back on use," said Philip K. Verleger, an oil consultant. "The question is how far down it goes."

Though half a dozen countries have talked about production cuts, highly populated countries such as Iran, Nigeria and Venezuela are already producing well below capacity and their old quota levels, and face pressure to produce more because of heavy domestic-spending demands. Kuwait has not cut production since 1998. Saudi Arabia is reluctant to play the role of sole swing producer and has already trimmed output.

"We do not expect any significant production cuts by OPEC at prices above $45 a barrel, the new target price," Fadel Gheit, oil analyst at Oppenheimer & Co., said in a report to investors. Oil markets seemed to agree. The price of crude oil on the New York Mercantile Exchange closed yesterday at $59.96, up 20 cents.

While motorists have welcomed the drop in gasoline prices, a Washington Post-ABC News poll released yesterday showed that many Americans remain suspicious about the reasons for the recent decline and skeptical about whether it will last.

Three out of 10 Americans think the recent fall in gasoline prices is a result of domestic political factors, including White House and Republican Party efforts to influence the November elections. That's nearly as many as the 35 percent who attribute the recent price decline to market forces or supply and demand, according to the poll of 1,204 adults conducted from Thursday to Sunday.

The survey also showed that suspicions about the steep drop in gasoline prices over the past two months aren't limited to the nation's liberal strongholds. Sixteen percent of people who identified themselves as conservative Republicans, 26 percent of white evangelical Protestants and 29 percent of Southern residents think the plunge in prices is linked to the coming election or other political reasons.

Those beliefs may be blunting the positive impact President Bush and the GOP hoped to get from falling fuel prices. "I think the president's party is lowering the gas prices until the people think the economy is settling down, and then they will raise the price again, blaming it on the Arabs for raising the price on barrels of oil," one respondent said.

"As you may know, gasoline prices have fallen recently in many parts of the country," the survey said before asking: "What do you think is the main reason gas prices have gone down?" The top four answers: increased supply, Bush/GOP efforts to affect the November election, the "upcoming election" and "market forces."

A large number of people interviewed pointed to the absence of disruptive hurricanes or simply "supply and demand," while one respondent said prices were falling "because the gasoline companies got what they wanted, the big bucks; and if they continue there will probably be an investigation."

Gasoline experts said there were some signs that prices were stabilizing. The pace of declines in the prices charged by wholesalers was slowing, and there were some tiny wholesale price increases late last week in the Gulf of Mexico region, said Trilby Lundberg, editor of the Lundberg Survey.

Lundberg warned that the sharp drop in prices could spur a resumption of increases in U.S. gasoline consumption. She also said that the closure of refineries for maintenance, not unusual at this time of year, could lead to a decline in inventories.

"Some analysts expect to see a fairly large amount of refinery maintenance this month, which could lead to product inventories being drawn down a little bit more than normal," said last week's report by the Energy Department's Energy Information Administration. "Large volumes of product inventories are one of the many reasons cited for declining prices in recent weeks, and should they begin to be drawn down significantly, this could stop prices from falling further."

But Verleger said he expected prices to remain weak through Thanksgiving or longer. He said that much of the increase in gasoline prices this year was the result of logistical problems oil companies encountered in adapting new government regulations. The companies have had to reduce sulfur content in diesel fuels and begin to mix gasoline with ethanol instead of methyl tertiary butyl ether, an additive that once made up about 3 percent of the content of gasoline.


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