Tags: Calmer | Gasoline | Market | Predicted

Calmer Gasoline Market Predicted

Friday, 06 April 2001 12:00 AM

The EIA said in its monthly energy outlook that the pump price of gasoline nationwide during the spring and summer months would likely average $1.49 a gallon, below last summer's average of $1.53, but still the second-highest summer average on record.

"A smooth transition into the driving season with minimal or no unplanned refinery outages or distribution bottlenecks should result in a calmer gasoline market than was in evidence last year," the EIA said. "Average pump prices should be somewhat lower nationally than last year as well under such fortuitous conditions."

Gasoline prices began to surge last spring as the effects of reductions in OPEC crude production began to cut into U.S. crude inventories. At the same time, demand increased because of the robust economy, while new EPA requirements for clean-burning reformulated gasoline (RFG) kicked in and fragmented the pool of available gasoline.

The U.S. economy was projected to expand this year by 1.9 percent and by 3.4 percent in 2002, a reduction for 2002 of 1.1 percent from the EIA's previous projection.

"The weaker growth outlook combined with an upward revision in industrialized country oil inventories at the end of 2000 would have resulted in some weakening of the world oil price outlook, but these factors have been offset by OPEC's announcement of a second round of output cuts since January," the EIA said.

World oil demand was expected to show gains despite the cooling U.S. economy, however the EIA saw some near-term softness this spring that could prompt further OPEC cuts as the cartel seeks to maintain its price level of around $25 a barrel.

There were also some ominous signs that regional price spikes were again possible due to overall low gasoline inventories.

A repeat of last summer's price surge in the Chicago area appeared to be brewing on Friday, according to Platts Oilgram, a prestigious Standard & Poor's oil industry publication.

Rising prices for RBOB, a basic ingredient known as a blend stock that is used in the RFG sold in Chicago, were sending the market signals that pump prices could be poised to climb. One reason was a new Chicago city ordinance banning the sale of gasoline made with MTBE, a blend stock that is used instead of RBOB in some gasoline.

"What that means is that what happened last year - MTBE-gasoline being shipped to the Chicago market when prices spiked, thereby helping to relieve the tight supplies - is far less likely to happen again, because it can't be sold in the city that is at the center of the market,'' said Platts gasoline specialist Bill Brocato.

Platts noted that on Wednesday, the price of RBOB climbed to 18 cents more than the price of conventional non-reformulated gasoline. At this time last year, before the surge in retail gasoline prices, that difference in price stood at 6 cents.

Also at low levels were natural gas inventories, which bodes ill for the electricity market in California and other locations that rely heavily on gas-fired generation.

"As expected, natural gas in underground storage reached the lowest levels recorded by EIA at the end of the heating season on March 31," the EIA said. "This development has set the stage for continued high spot and wellhead prices that will be sensitive to variations in summer weather conditions that would lead to high electricity demand and competition for gas needed for storage injections."

Electricity is expected to remain a volatile proposition on the West Coast and in the New York City area as demand continues to lag behind supply. The EIA said that the growth in electricity demand was projected at 1.9 percent this year compared to 4.9 percent in 2000 because of the economic slowdown and anticipated cooler summer weather.

California and the rest of the West will be hampered by lower hydroelectric production due to the dry winter. The California Independent System Operator issued a report Thursday predicting around 34 days of rolling blackouts this summer. The projection was based on demand crossing the 40,000 megawatt threshold during hot weather as it did 34 times last summer.

"Any [demand] growth at all may strain power resources that are already near the limit, and the Pacific region of the United States is a prime example of where this is an issue," the EIA said. "The fact that California has already experienced blackouts in 2001 does not bode well for the chances of getting through the summer without serious power supply problems."

Copyright 2001 by United Press International. All rights reserved.

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The EIA said in its monthly energy outlook that the pump price of gasoline nationwide during the spring and summer months would likely average $1.49 a gallon, below last summer's average of $1.53, but still the second-highest summer average on record. A smooth transition...
Friday, 06 April 2001 12:00 AM
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