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Prepare yourself for $3 a gallon gasoline

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  • Prepare yourself for $3 a gallon gasoline

    Gas-pump sticker shocker
    Retail prices expected to blow past record high
    By Myra P. Saefong,
    Last Update: 8:00 AM ET Feb. 14, 2004

    SAN FRANCISCO (CBS.MW) -- Get ready to dig deeper into your pockets at the gas station this summer: $3 per gallon gasoline could be headed to a pump near you.

    The expanding U.S. economy, limited supplies of certain blends and unexpected output cuts by major producing nations will likely propel U.S. retail prices well past their record high, industry experts said.

    The Organization of Petroleum Exporting Countries, which supplies 40 percent of the world's oil, agreed Feb. 10 to rein in an estimated 1.5 million barrels of daily overproduction. Members also voted to cut their official output target by 1 million barrels to 23.5 million barrels a day, excluding production from Iraq, starting April 1.

    The cartel's action comes as the national retail price of gas is only 10 cents below the all-time average high of $1.73 a gallon reached last August.

    "OPEC's decision ... is one more reason on an already lengthy list of why U.S. consumers are likely to pay the highest gasoline prices on record this year," AAA spokesman Geoff Sundstrom said.

    Gas prices "will certainly breach" the $2 mark on the back of OPEC's announcement, said Kevin Kerr, a senior trading director at KWEST Trading International. "At the same time, the economic recovery in the United States and other parts of the world ... and the draw on existing energy supplies could be disastrous."

    Since the oil market didn't anticipate OPEC's dramatic moves, "the shockwave will be felt all the way to the pumps," Kerr said.

    A survey of the five market analysts found all agree that retail gas prices will, at the very least, hit a new record this year.

    Indeed, if crude inventories don't increase, and if OPEC votes to cut another 5 percent from its output, unleaded gas prices could reach the "upper limits of $2.75 to $3 this summer," said John Person, head financial analyst at Infinity Brokerage Services.

    Dollar blame

    One of the cartel's key reasons for the production cut -- a weaker U.S. dollar -- factors into expected price climb, thought the experts disagreed about its level of importance.

    "Over and over again, OPEC raised crude oil prices ... saying the weaker dollar brings member nations lower revenues because oil is traded in dollars," Kerr said. "It isn't rocket science to figure out they will likely do this again with the dollar reaching new lows."

    Fimat USA analyst John Kilduff sees a different driver. He said the dollar's decline coincides with a much bigger factor for oil prices: "The lowest U.S. crude-oil inventories in a generation."

    Yet Tom Kloza, chief oil analyst at the Oil Price Information Service in Lakewood, N.J., believes the 2004 gasoline price rally won't be about crude, but about the level of gas supplies. "When traders fear a product may be 'short' as the season approaches, or when it actually is short or tight within [the] season, prices tend to migrate toward hyperbolic numbers."

    Contributing factors

    Retail prices will likely surpass $2 a gallon in two separate spikes," Kloza said, "one in the spring based on fear and uncertainty, and another toward the end of the summer."

    The initial price jump will come during the transition from winter to summer blends of gasoline, which typically puts a strain on supply availability, Kloza said.

    A variety of new state environmental regulations regarding gasoline formulation are having an increasingly disruptive impact on supplies, Fimat's Kilduff said.

    "The mosaic formulation scheme that caused severe price spikes in California and the upper Midwest in the recent past is now coming to the New York Tri-State area, due to New York and Connecticut adopting ethanol as their oxygenation component, " he said. New Jersey has remained with the MTBE formulation, he added.

    In addition, by July and August, the market might be experiencing average demand of 9.5 million barrels a day or higher at a time when production will likely top out at 8.8 million barrels or so, Kloza said.

    With the economy gaining strength, this summer is "on pace to be a banner demand year," agreed Agbeli Ameko, a managing partner at energy-forecasting firm, Enercast Inc. "Supplies are lower and production is not keeping pace with this demand growth."

    AAA's Sundstrom also noted that some travel experts expect robust spring and summer vacation seasons. That's a recipe for a peak-driving season where the supply and distribution system has no room for error, Kloza said.

    "A refinery problem or two, an inordinate surge in demand, a loss of say, Venezuelan imports ... all this would create the much hackneyed 'perfect storm' characterization."

    Paying the ultimate price

    While Infinity's Person sees prices peaking at $3 in some metro areas in the worst of circumstances, OPIS' Kloza sees average prices rising above $2 but reaching the high-$2 range for only a brief period if at all. If any region sees prices near $3 a gallon, it would be already high-priced markets like California and Chicago and would occur only after a refinery outage or two, he said.

    "The gasoline market will have an irregular heartbeat ... racing at times and resemble brachyadia at others," Kloza said. "The overall retail average for the year will be the highest ever," but there will a huge gap between the highest and lowest prices, which could still run as low as $1 a gallon in some states.

    Fimat's Kilduff said it would be difficult for average prices to climb much higher than $2. "Some sort of government intervention would occur at levels around $2.25," he said, though he did accept the possibility of $3 gas in certain snag-prone areas, such as California.

    Enercast's Ameko argued that federal and state politicians would likely intercede rather than sit idly by should prices skyrocket.

    "Going into an election year, $3 retail prices would spell disaster," Ameko said. He doesn't expect demand to be strong enough to lift prices above $2.25, and suggested prices will average around $2.15.

    Myra P. Saefong is a reporter for in San Francisco.
    Make America Great For Once.

  • #2
    1. Yet another reason why the US needs more/better alternative transportation

    2. The depreciation of the dollar against other major currencies (Euro, Yen and Sterling) likely played a huge part in this..the dollar has depreciated by 20-30% against the, the correlation should be gas prices increasing by an equivalent amount

    3. The invasion of Iraq also played a role as Iraqi oil supplies are an unknown quantity for the time being. When more clarity around this happens..the prices will fall off again.

    4. Yet another reason why the US needs to break their addiction to "Balck Heroin"..alternative fuels need to be found soon

    5. OPEC and the major petrol companies (ExxonMobil, BPAmoco, Shell) will be raking in the profits..since, in essence, they control the global supply of oil, its distribution and market price..not OPEC


    • #3
      I have a very simple solution. For every 50 cent spike in gas prices, we simply invade another oil producing nation. Saudi Arabia, Yemen, Kuwait, UAE, Iran, Russia....



      • #4
        If we owned ALL of the world's known oil reserves, as long as the Bushies are in control, we'll always see America's oil COMPANY lust for the highest profits available.
        Make America Great For Once.


        • #5
          The expanding U.S. economy,
          Dammit! We gotta knock that shit off.


          • #6
            Expanding American jons to foriegn soil.
            Make America Great For Once.


            • #7
              It's already up to $1.95 in some places in the Phoenix area. I have to drive a lot for work so this is going to hit me where I live. One more thing to worry about, great. :(
              "They misunderestimated me."
              Bentonville, Ark., Nov. 6, 2000

              "Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we."—Washington, D.C., Aug. 5, 2004

              "If you're sick and tired of the politics of cynicism and polls and principles, come and join this campaign."
              -Hilton Head, S.C., Feb. 16, 2000

              Gives you the warm fuzzies, doesn't it?


              • #8
                Posted by Damtoft last summer:

                Posted: 21 Jun 2003 12:53 pm

                Post subject: Nikki


                Don't want to burst your union bubble pal, but Iraq starts pumping oil tomorrow.

                If gas goes to $1.05 a gallon as a result, that's a tax cut for everyone.

                I know these sorts of logical arguments escape you.

                Keep on pissing in the wind.

                JD the great prognosticater! Wrong on all counts! But, using his logic:

                Higher gas prices represent a Bush tax increase for everyone!

                I await you answer-- or excuse, JD!
                Norman Chad, syndicated columnist: “Sports radio, reflecting our sinking culture, spends entire days advising managers and coaches, berating managers and coaches, firing managers and coaches and searching the countryside for better middle relievers. If they just redirected their energy toward, say, crosswalk-signal maintenance, America would be 2 percent more livable.”

                "The best argument against democracy," someone (Churchill?) said, "is a five minute conversation with the average voter."


                • #9
                  There's an e-mail going around that talks about everyone boycotting 1 gas company (Exxon/Mobil) until it starts a gas war. Which would work better than everyone not buying any gas for 1 day. The only problem is it's easier for everyone to bitch about high gas prices than to actually try to do anything about it. Especially if you bring politics into it.
                  "You're my wife Margene, you can't be seeing the girl I'm dating." - Big Love


                  • #10
                    Of course silly.
                    GWB's friends are OIL PRODUCERS here in the US, we only pump oil here in the US when the price gets high enough to make a big profit from it, Dubya gets more campaign money when the price of oil goes above X amount of dollars per barrel.
                    Be passionate about what you believe in, or why bother.


                    • #11
                      I'm starting to believe that Shell, Amaco, Phillips, and a few other names, are just fronts for a single owner.
                      Make America Great For Once.


                      • #12
                        Originally posted by The Kev@Feb 23 2004, 09:27 AM
                        I'm starting to believe that Shell, Amaco, Phillips, and a few other names, are just fronts for a single owner.
                        Be passionate about what you believe in, or why bother.


                        • #13
                          Maybe if we had gas at $3 a gallon, we might finally see cars that do decent gas mileage like most of the rest of the world.


                          • #14
                            Dude, what a picture. She is just unreal.
                            Be passionate about what you believe in, or why bother.


                            • #15
                              Originally posted by madyaks@Feb 23 2004, 08:36 AM
                              Dude, what a picture. She is just unreal.
                              Not to take this off topic, but that is a complete understatement.