Falling oil prices unlikely to last
Sunday, March 23 By Ted Jackson, Palm Beach Post Staff Writer Saturday, March 22, 2003
Oil prices have fallen sharply since the start of the Iraq war, but don't expect record-high prices at the pump to drop anywhere near as fast. It won't stay there for long
Even though futures prices for wholesale gasoline have fallen in the last two days by about 40 percent, to 82 cents per gallon, and oil prices have tumbled 30 percent, to about $26.50 per barrel, energy market observers say prices are unlikely to remain low for very long.
"I expect oil will fall as low as $21 per barrel," said Alexander Levien, an oil trader at Ken Wolf Commodities in Boca Raton. "But it won't stay there for long."
Levien expects oil prices will soon be approaching $30 per barrel again, while the federal Energy Information Administration is forecasting an average price for oil this year of $32 a barrel, a 25 percent jump from 2002 that assumes no supply disruption from a war in Iraq.
"It would take between four weeks to eight weeks for these lower oil prices to start showing up at the pump anyway," said EIA analyst David Costello.
Gasoline prices in Palm Beach County hit a record high in February, several weeks before the average price for gasoline in Florida hit a similar record.
The current average price for gas in the county is $1.79 per gallon.
"The market is really focusing on the progress of the war right now," said Guy Gleichmann, senior energy trader at U.S. Investments in Miami. "Because the campaign seems to be proceeding smoothly, the big war premium that drove prices higher is now being squeezed out of the market."
There are several reasons why experts think the price of oil will go back up.
Oil inventories are at historic lows in the United States and it is unclear whether increased OPEC production will be enough to sustain the recent decrease in the price of oil.
Also, the effects of a prolonged strike in Venezuela are depriving the world market of about 500,000 barrels a day, while escalating violence in the oil-producing Niger River delta in Nigeria has cut production in that country by about 10 percent.
The oil markets were cheered by reports Friday that only seven wells had been set on fire in the key oil fields of southern Iraq.
Adm. Michael Boyce, chief of the British defense staff, confirmed Friday that oil fields in the south had been secured with minimal damage, according to Dow Jones.
Nevertheless, Iraqi oil exports have ground to a halt for the time being, depriving the world oil market of the country's 2 million barrels a day of production.
World oil consumption is 77 million barrels a day.