OPEC tries to put brakes on sliding gas prices

Posted on Thu, Apr. 24, 2003 BY KEN MORITSUGU twincities.com-Knight Ridder News Service

WASHINGTON — The good news is gasoline prices are not expected to rise much this summer. The bad news is they might not fall either.

A recent slide in gasoline prices might be winding down because major oil- producing countries are expected to announce production cuts today and the peak U.S. driving season is about to begin.

The Organization of Petroleum Exporting Countries is holding an emergency meeting in Vienna, Austria, to decide how much to rein in production.

The national average price for a gallon of regular unleaded dropped 15 cents in the past five weeks to $1.57, in large part because OPEC flooded the market with crude oil to offset the loss of supply from Iraq during the war. Gasoline is even cheaper in much of the South, but more expensive on the West Coast.

Now, OPEC is worried that a glut of oil might develop and cause a collapse in oil prices.

The price of crude oil fell to $26.65 a barrel Wednesday on the New York futures market, as the Energy Department reported that record oil imports last week pushed up U.S. inventories by 9 million barrels. A barrel is 42 gallons.

Just how much to cut remains a bit of a guessing game for the OPEC oil ministers. One uncertain factor is how soon Iraqi oil will return to the market. Other question marks include how quickly Nigeria and Venezuela will return to full production after political unrest that disrupted their oil operations.

Oil market analysts expect OPEC to curtail production by somewhere between 1 million and 2 million barrels a day and to revisit the issue at its next meeting on June 11. The OPEC nations are pumping more than 26 million barrels daily.

While OPEC cuts the supply of oil, U.S. demand is expected to rise as the weather warms and more people take to the roads.

Driving could be heavier than usual this year if the severe acute respiratory syndrome crisis prompts more people to take driving vacations instead of flying abroad, said Bruce Cavella, an oil industry analyst with Global Insight, an economic consulting firm in Lexington, Mass.

The Energy Department predicted earlier this month that unleaded regular would average $1.56 a gallon this summer, and an Energy Department economist said Wednesday that he sees no reason to change that. That still would be 17 cents a gallon higher than last summer's average of $1.39.

Gas prices could fall if OPEC miscalculates and the price of crude oil plummets.

Conversely, gas prices could rise if there is a serious breakdown. Because refiners made more fuel oil and less gasoline during the relatively cold winter, and because they cut back purchases of crude oil when prices were high, inventories of gasoline are lower than usual.

for this time of year, leaving the market vulnerable to a major refinery shutdown or pipeline break.

"We're not free and clear yet," Cavella said. "I think the next couple of months will still be dicey for gasoline prices."