Analysts: Gas prices may hit record
www.gopbi.com By Ted Jackson, Palm Beach Post Staff Writer Friday, January 31, 2003
Gasoline prices are fast approaching the highest levels ever recorded amid fears of an approaching war in the Middle East and petroleum production shutdowns in Venezuela.
Analysts say that if oil prices do not fall before the spring, technical factors affecting refining costs because of Clean Air Act regulations could send gas prices to their highest levels in history.
This could mean trouble for the economy as consumers spend more on energy and less at the mall.
Already the consumer, whose spending accounts for two-thirds of the economy, appears to be in trouble. As part of its report on overall economic growth, the U.S. Commerce Department revealed Thursday that consumer spending increased by the smallest amount in 10 years last quarter.
Driven by soaring oil prices, the price of gas in Palm Beach County is less than 10 percent below the all-time high of $1.725 per gallon reached in May 2001. At $1.579 per gallon for regular unleaded, gas prices are 30 percent higher than at this time last year.
Local station owners say their business has been hurt.
Joseph Williams, proprietor of the 45th Street Hess station in West Palm Beach, said that sales have declined over the past month and a half as gas prices have climbed.
"It's bad," Williams said.
Analysts say the outlook for gas prices is difficult to ascertain because so much of the recent increase in oil prices is due to political developments, which are difficult to forecast.
"So much of what the future holds depends on how the oil strike in Venezuela is resolved and, to a lesser extent, on developments with respect to Iraq in the Middle East," said John Lichtblau, chairman of the Petroleum Industry Research Foundation in New York.
But if oil prices do not fall before spring, AAA auto club spokesman Geoff Sundstrom believes, gas prices could set new records by summer.
When gasoline refiners begin using regional blends dictated by the Clean Air Act it could add 10 cents per gallon to the price, Sundstrom said.
"So if oil prices don't fall, we will be in trouble," he said.
Faced with a slowdown in consumer spending, analysts say, if oil prices continue to rise President Bush might decide to release stocks from the nation's Strategic Petroleum Reserve.
This might mitigate increases in gas prices at the pump.
The president already has begun diverting oil supplies meant for the reserve to commercial oil stockpiles, which in recent weeks have fallen below the five-year average for this time of year.
One bright spot is that production in Venezuela, a key U.S. oil supplier, is starting to ramp up.
The strike by oil company workers and management there continues, but the beleaguered government of President Hugo Chavez has managed to increase production to 33 percent of capacity, according to Jim Smith, president of the Florida Petroleum Marketers and Convenience Store Association.
Several weeks ago, Venezuela was producing virtually no oil.