Monday, July 10, 2000
Experts: Gas prices likely to slide to $1.35 a gallon
By James Pilcher
The Cincinnati Enquirer
Bob Ashorn of Reading fills his tak at the BP station on Sharon Road at Interstate 75 Sunday.
(Steven M. Herppich photo)
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When gasoline prices got out of control in the 1970s, drivers were thrilled when prices stabilized at 75 cents a gallon, after gas had yo-yoed from 50 cents to $1 in a matter of months.
Many didn't realize that they settled for a 50 percent net increase in prices over just a few months.
That won't happen this time, analysts say, despite a recent flirtation with a $2 gallon.
Instead, most predict that the current decline in gas prices will continue until prices stabilize at about $1.35 per gallon, where they were three months ago. That's thanks to increases in supply coupled with an ex pected drop in demand.
But experts say prices will drop a lot more slowly than they went up, a lag possibly created by oil companies looking to recoup profits caused by the recent troubles.
Gas prices dropped an average of 4.45 cents a gallon nationwide during the past two weeks, analyst Trilby Lundberg said Sunday.
The weighted average price of gasoline was $1.67 on Friday, according to the Lundberg Survey of 10,000 stations.
Sunday's average in the Tristate was $1.65 for a gallon of regular, according to the American Automobile Association, which tracks daily average gas prices.
Drivers lucky enough to buy gas in Florence or Westwood paid as little as $1.45 a gallon Sunday.
The Tristate average is down from the high of $1.91
on June 20, but still almost 22 percent higher than the $1.36 average on May 1 and nearly 28 percent higher than the area's six-month low of $1.29, set on Jan. 14.
“We could see a drop upwards of 15 cents on the retail side within six months,” said Ed Maran, an oil industry analyst for A.G. Edwards, who predicts record profits for most of the country's major oil companies. “From where we've been, 15 cents is a pretty good drop.”
The rest of the country has followed the downward trend, with AAA reporting a national average of $1.62 a gallon Sunday.
Low prices made for brisk business Friday at the Speedway station in St. Bernard, where a gallon of regular unleaded cost $1.50.
Sam Tawfik, filling in as a manager on Friday, would like to see another quarter knocked off their price.
“Customers notice when there's a big drop. If it's two cents, five cents, they don't care,” he says, noting that many customers buy only $4 to $5 of gas at a time.
Analysts say that a 25-cent drop is not going to happen soon, especially because many gas companies kept profit margins lower than normal during the price hikes to avoid the dreaded $2 gallon of gas.
“It's like any other retail business — retail always moves slower than wholesale, especially on a downslide,” said Frederick P. Leuffer, an oil analyst for Bear and Stearns. “It will move directionally down as crude goes down, just not as fast.”
Marathon Ashland Petroleum LLC, a joint venture of Marathon and Ashland oil companies, owns Tristate Speedway and SuperAmerica stations. It also distributes gas to Marathon franchises, making it one of the area's biggest suppliers.
Company spokesman Troy Reynolds would not predict where gas prices are headed. Gas stations make 5 to 7 cents per gallon in profit, he said.
“You have to sell the product to make any money off it, and the only way to sell it is to stay competitive,” Mr. Reynolds said. “We're not like other businesses — we have to advertise our prices on big signs in front of our stores for everyone to see. That makes the idea of inflating our margins a little far-fetched.”
A main reason for recent drops, especially here in the Midwest, is a bigger supply.
Companies rushed gas into the area during the recent shortage that had caused prices to skyrocket. States such as Indiana and Illinois temporarily dropped their sales taxes on gas, lowering prices further.
Other factors that could affect gas prices this summer: Decreasing demand toward the end of summer coupled with increased supply. Saudi Arabia recently pledged to boost oil production by a half-million barrels a day, and Iran followed with a similar promise.
That could drop oil prices below $25 a barrel and lower retail prices even more. Crude prices dropped as much as $2 a barrel last week and wholesale gas prices plunged another 10 to 15 cents a gallon.
“By the time the leaves turn brown and you're sitting on your couch watching football, we'll be looking at gas prices of between $1.35 and $1.50,” predicted Tom Kloza, publisher of OPIS, an independent online and weekly oil industry magazine.
However, Mr. Kloza warned, in the short term prices could shoot up again if there are more U.S. refinery problems, which caused last month's price hikes. In the long run, he says, they might top $2 again next year.
“We might be in the middle stretch of a doubleheader,” Mr. Kloza said. “We're not adding any refining capacity, and we're adding demand ... Unless we go into a recession, these (high) prices probably will return at some point in the not-too-distant future.”
Enquirer reporter Sarah Anne Wright and The Associated Press contributed to this article.
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