Saturday, July 01, 2000
Gas not expected to top $2 mark
By James Pilcher
The Cincinnati Enquirer
As recent gas price increases spread south from Chicago, many cities broke past $2 for a gallon of regular unleaded, leaving many area residents wondering if Greater Cincinnati will be next.
Many experts say probably not this summer, even with a slight rise expected over the weekend as demand increases for the Fourth of July holiday.
In fact, recent drops pulled all American markets below the $2 mark for regular unleaded — including Chicago. The Tristate's average price for a gallon of regular unleaded on Friday was $1.68.76, as reported on the American Automobile Association's Web site that tracks daily averages for major cities.
“If you start at the current average ... then you're pretty safe from hitting $2,” says Peter Beutel, an oil industry analyst for Cameron Hanover, Inc., a Connecticut-based energy risk management firm. “Thirty cents is a long way to go.”
Cities as close as Columbus and Indianapolis reached or flirted with the $2 mark during the recent price hikes. Chicago was by far the highest, with prices reaching almost as high as $2.50.
But Thursday, not only did prices drop below $2 there, but Illinois dropped its 5 percent sales tax on gas for six months, saving consumers there 5-10 cents a gallon.
According to AAA, Greater Cincinnati hit its highest average price of $1.90 for a gallon of regular unleaded on June 20, although higher grades still are selling above $2 a gallon here and there.
“You have to remember that $2 a gallon has become an apocalyptic number to suppliers and retailers,” says Tom Kloza, publisher of OPIS, an independent print and online trade magazine that covers the oil industry.
Local gas distributor Les Kovel agrees, noting a recent drop in wholesale prices in the Midwest.
“We may not see the street price go down much more, and we're trying to keep the $2 price away,” says Mr. Kovel, owner of Skurow Brothers, which operates eight Marathon gas stations throughout the Tristate and distributes gas to several others.
What's ahead
Yet experts don't rule out the possibility of Cincinnati hitting the two-buck mark, giving two main possible causes:
• A breakdown at any refinery around the country because of an accident or malfunction could put prices into orbit once again.
Gas companies cited problems converting major refineries around Chicago to produce environmentally friendly reformulated gas as a major reason for the current crisis in the Midwest. Another reason was a pipeline breakdown outside St. Louis that closed key Midwest access for five days.
And just this week in California, wholesale per-gallon prices rose as much as a nickel following news of a refinery problem there.
As of Tuesday, the nation's refiners were operating at 96.3 percent capacity, according to OPIS.
• OPEC slows production or doesn't keep up with demand, thereby raising crude oil prices, which make up as much as 40 percent of the cost of a gallon of gas. That, coupled with the fact that as much as 70 percent of the United States' oil is imported, makes this a tenuous connection.
OPEC countries recently voted to up production by 708,000 barrels a day, but they were already producing 600,000 barrels more than their quota. It remains to be seen whether OPEC will live by the agreement or produce more than its new limit. Analysts had said that OPEC needed to increase production by 1 million barrels a day to have any real impact on gas prices.
Psychological impact
If and when Cincinnati breaks the $2 barrier, no one can tell what the reaction would be, psychologically or otherwise.
“I just came back from Chicago, where they've had $2 a gallon for awhile, and there weren't any fewer cars on the road that I could see,” Mr. Kovel says.
Taxi driver Walker Jackson has a one word response to what a $2 gallon of regular unleaded gas would mean.
“Disaster,” says Mr. Jackson, as he pumped gas for $1.65 a gallon — one of the lowest prices in the Tristate — at a Travel Centers of America station at the Ky. 18 interchange with Interstates 71/75 in Florence. The station has since lowered its price to $1.63.
“I'm already spending $40 a day on gas,” says Mr. Jackson, of Burlington. “We're already charging an extra $1 (per fare) as a surcharge, and there's not much more we can do except eat it.”
A survey conducted jointly by AAA and the Travel Industry Association of America reports that 43 percent of those planning vacations by car this summer would consider altering or canceling their plans if gas hit $2 a gallon.
Scott Mosely, general manager of the Florence Travel America, says he isn't worried about a possible sales dip caused by a $2 price, especially since he makes so little profit on gas now.
As for the hype about the $2 mark, “everybody was saying the same things when we first hit $1 or $1.50 a gallon, so this is nothing new,” he says. “I hope it never gets there, but it won't be as big a deal as everyone thinks.”
Staff writer Reid Forgrave contributed to this report
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