Gasoline prices, in Chicago and elsewhere, are likely to continue rising through early summer even if OPEC oil ministers reach agreement Tuesday on how much crude oil they will add to global supplies.
A production increase is virtually certain. Debate among the OPEC ministers has centered on how much of a boost to approve–the 1.2 million barrels a day backed by Iran or the increase of 1.7 million barrels a day favored by Saudi Arabia. On Monday, the ministers adjourned without reaching agreement.
But boosting production now won’t head off price increases that are starting to flow through the U.S. production pipeline as oil refiners switch from producing winter grade gasoline to summer grade and oil supplies remain tight, industry experts said Monday.
“The biggest mistake would be for Americans to think that the price was going to go back to $1.10 to $1.30 a gallon,” said Ben Brockwell, editor of the Oil Price Information Service. “Prices are going to go up and will stay up through June.
“In the open market, the summer grade of gasoline is 10 to 12 cents more expensive right now. We already have an increase in price that is built in,” Brockwell said.
The Clinton administration and Congress have been hoping that a production increase–the U.S. has been pushing for a 2 million-barrel-a-day increase–will lead to an easing of prices later this spring as supplies build.
Nationally, the retail price for unleaded gasoline last week declined 2.1 cents to $1.508 a gallon, the first price drop in 11 weeks, the U.S. Energy Department reported Monday. Still, the department warned that $1.80 per-gallon gasoline is likely despite a production increase.
Pump prices are still 43 cents a gallon higher than they were a year earlier, based on the department’s weekly survey of 800 service stations. West Coast drivers paid the most in the nation for gasoline, $1.734 a gallon. The Midwest as a region had the lowest gasoline price at $1.445 a gallon, down 4.1 cents. In the Chicago area, motorists were paying $1.65 a gallon.
The boost in volume won’t result in lower pump prices for several months, if then, said Jon Swesky, manager of a BP Amoco station in Oak Park.
“Gas prices have been down for so long, while everything else went up with inflation,” he said. “I just don’t think we’re going back to those lower prices.”
A modest boost in production won’t do much to prices at the pump, agreed Raleigh Kean, president of Evergreen Park-based Kean Brothers Inc., which owns 11 retail Mobil gasoline stations. “They aren’t going to release enough to make prices go down, though it may stop the upward spiral” over the long term, Kean said.
Prices might finally begin easing a bit in midsummer, when increased OPEC production and increased refinery production finally intersect, according to Brockwell of the Oil Price Information Service.
Tom Mueller, a spokesman for BP Amoco PLC, which operates the giant Amoco refinery in Whiting, Ind., said the refinery could quickly ramp up operations.
“Whiting is not running full tilt right now,” Mueller said. “Partially that is because we are in the off-season for gasoline demand and partially because this is typically a maintenance period.”
But industry experts said gasoline inventories are fairly low. Even if production accelerates at places like the Whiting refinery, inventories will not catch up quickly. A continuing shortage of oil stocks is likely to put additional pressure on the price of gasoline and oil.
“Supplies are tight enough that it will take three months to refill the supplies that have been run down,” Brockwell said.
U.S. oil prices tripled to a March 8 peak of $34.37 a barrel after OPEC’s decision last March to slash production, but they have eased somewhat since then. Crude oil for delivery in May fell 23 cents to $27.79 a barrel Monday on the New York Mercantile Exchange.
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OPEC pumps more than 26 million barrels of crude each day, or about 35 percent of the world’s supply. Non-OPEC producers Mexico and Norway, which cut back their production in tandem with OPEC, have said they are watching to see what OPEC will do before adjusting their output.
The Saudis want to stabilize prices at a level that won’t cause economic problems for the nations that buy its oil. If high prices start damaging economies, producers fear that demand for oil could again plummet, Brockwell said.