Gasoline appears to level off

Government predicts prices will fall to an average of $2.58 in the fourth quarter

The New York TimesSeptember 8, 2005 

Gasoline prices appeared to stabilize Wednesday as companies restored more oil production and refining capacity, and the government projected that prices would drop well below $3 a gallon by the end of the year.

But any relief consumers experience at the pump will quickly disappear as heating oil and natural gas prices soar 31 percent and 24 percent, according to a report from the Energy Information Administration, a division of the Department of Energy.

All told, according to the report, the United States will spend $1.03 trillion on energy in 2005, 18 percent more than it did in 2004, accounting for 8.3 percent of the gross domestic product, the highest since 1987.

Hurricane Katrina dealt a big setback to offshore oil and natural gas production facilities, refineries and pipelines that transport gasoline and other fuels to the eastern United States. The report said the hurricane's impact will be felt for several months.

"Even if it's not cold, it's not going to be happy," Dave Costello, an economist at the Energy Information Administration, said about the winter.

A gallon of regular unleaded gasoline was selling for $3.042 on average nationwide Wednesday morning, little changed from Tuesday but up about 70 cents a gallon from a month ago and $1.20 from a year ago, according to AAA, the motor club. Prices in some urban areas were around $3.20 Wednesday. The report from the Energy Department said retail prices should average $2.57 a gallon in the third quarter and $2.58 in the fourth quarter.

"The worst shock -- the $4 prices in some markets, the $3.40, the $3.70 numbers that we saw -- I hope that the worst of that is over," said Ben Brockwell, director of pricing and data services at Oil Price Information Service, whose data AAA uses. "Supply prices have come down quite a bit over the past 48 hours. That should start to filter down to retailers."

In an unusual reversal of roles, drivers on the West Coast, which typically has the highest gasoline prices, have been paying some of the lowest prices because the region has its own network of refineries and pipelines. In Los Angeles, prices were averaging $2.98, and Seattle motorists were paying $2.84, said Brad Proctor, founder of GasPriceWatch.com, a service that collects retail prices through volunteers.

In futures trading in New York, the price of gasoline for October delivery fell 3.28 cents a gallon Wednesday, to $2.022. Crude oil prices fell $1.59 a barrel, to $64.37, and heating oil fell 9.2 cents a gallon to $1.962.

Commodities traders and analysts will be watching another Energy Department report expected out Thursday morning that will provide data on crude oil, gasoline and other fuel production and inventories.

Of the 10 refineries in the Gulf directly affected by the hurricane, three have restarted, and another should be up in the next month. Of the remaining six, four could take weeks or months to resume production, but two others could start later this week. An offshore oil import terminal was accepting crude from several tankers Wednesday. Fifty-seven percent of offshore oil production and 40 percent of gas production remained shut down, slightly less than on Tuesday.

While encouraging, that progress will serve as little solace to consumers facing higher home heating bills this winter.

Analysts say heating oil prices, which were already expected to rise 17 percent this winter before Hurricane Katrina hit, will be higher still because refiners will have to make up lost gasoline production in the fall, a time when they would have been making more heating fuel.

"The fact that we have this downtime at some of these refineries, you will start to see a drawdown in heating oil inventories," said Thomas Bentz, an analyst at BNP Paribas in New York.

American consumers endured a brutal 2004-2005 winter, when heating oil prices rose 34 percent. And while consumers can drive less, car pool and take other steps to reduce their consumption of gasoline, there is little most people can do to reduce their heating bills, Costello of the EIA said: "You are stuck; you have to heat your home."

The Energy Information Administration reduced its estimate of how much petroleum -- which includes gasoline, jet fuel and other fuels -- the country will consume this year by about 60,000 barrels a day.

If consumers are spending more on gasoline and heat, at least some of them will probably spend less on other things, analysts said. Many economists have reduced their growth forecasts for gross domestic product for 2005.

But the net impact on the economy may be harder to gauge, because even as consumers reduce spending in the Northeast and Midwest, some in the Gulf will start to rebuild homes and businesses, said Ken Mayland, president of ClearView Economics. Also, energy companies will be spending money on repairing and rebuilding refineries and rigs.

"There are going to be some beneficiaries, and they may come in ways and places you don't expect," Mayland said.

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