Post by Gene on May 4, 2007 19:40:33 GMT -5
How High Will Gas Prices Rise This Summer? The Wall Street Journal Online
By Ana Campoy
A Lot Depends on Refineries, Weather and Driving Habits; A Raccoon and an Opossum
Gasoline prices, already flirting with $3 a gallon, could move even higher during the summer driving season. It all depends on refineries, weather and drivers' tolerance for expensive fuel.
Rising gasoline prices already are pinching sales of gas-guzzlers like sport-utility vehicles and putting consumers in a sour mood. High gas prices in particular affect working-class shoppers, and they're a big reason why sales growth at Wal-Mart Stores Inc. has been anemic in recent months. But some more-affluent consumers are changing their habits as well. Omar Galicia, a Dallas attorney, says he is driving less during weekends because of high gas prices. If prices keep going up, he says he'll trade in his Dodge Charger for a more fuel-efficient car. "I don't have that long of a commute, but it impacts your wallet," he says.
Still, pain at the pump hasn't kept Americans from driving, which is part of the reason gasoline prices keep rising. Many workers need to drive to earn a living, and cutting back isn't an option.
"I've been trying to find a job that is closer to home to save some gasoline, but sometimes it's difficult because the work is all over the place," says Jariel Herrera, a 32-year-old granite and marble installer in Dallas. "My job is to go from one place to the other. I can't not drive."
The latest Energy Information Agency data show gasoline demand in the past few weeks rose 2.3% from the same period last year, outstripping growth in refinery capacity. That, in turn, is making the U.S. ever more dependent on gasoline imports.
Regular gasoline nationally averaged $2.97 a gallon, AAA reported yesterday. While that's still about nine cents shy of the highest price ever recorded, which was in September 2005, it is a record high this early in the season. Gas was selling for just $2.70 a gallon as recently as the beginning of April.
How high prices go this summer depends largely on what happens to the refineries that crank out the nation's fuel. Refinery outages in recent weeks, largely for maintenance, are part of the reason fuel prices have rocketed up. If refinery operations smooth out, gas prices could remain stable or even fall.
But the picture could be far bleaker if supply interruptions persist or intensify. In 2005, hurricanes Katrina and Rita smashed into the petrochemical-refining belt in the Gulf of Mexico, idling more than a quarter of the nation's refining capacity and sending gasoline prices climbing. Another hurricane striking Louisiana or Texas this year, even if less severe than the storms in 2005, could have a similar effect on pump prices.
"There's very little slack in the system, so it doesn't take a lot to go wrong to send prices higher," says Doug MacIntyre, senior oil-market analyst from the Energy Information Agency, a federal agency.
Demand for gasoline has been growing at a faster pace than domestic refining capacity. The U.S. has filled that gap by importing fuel. The problem now is that imports aren't as readily available as in the past.
Europe, which provides a big chunk of the gasoline imported by the U.S., is switching some of its refineries to diesel, which is becoming the preferred fuel in that market, says Antoine Halff, head of energy research at Fimat, a brokerage firm owned by Societe Generale. Tougher environmental regulations have reduced overall output, and the strong euro has also made importing European gasoline to the U.S. less economical, he adds.
Imports from other countries, such as Venezuela, have also fallen due to refinery problems in those countries. In the first three months of the year, gasoline imports to the U.S. fell 12% compared with the same period last year.
At the same time, a string of refinery outages and maintenance stops in the U.S. drove refining capacity to record lows. Refining capacity in the third week of April was 87.8%, compared with an average of above 90% in the same period between 1994 and 2005, according to the EIA. This is even lower than the 88.2% capacity levels recorded in mid-April last year, when refineries were still recovering from Hurricane Katrina.
Although analysts expect domestic production to increase in coming weeks and somewhat restore inventories before the start of the driving season, even a small mishap can have a huge effect on prices.
Earlier this year, a raccoon and an opossum wandered into two Southern California substations, causing a power-supply disruption that resulted in flaring at one refinery and an outage at another. With supplies in the Los Angeles market tight, the incident -- along with a host of other factors -- contributed to rise of a few cents per gallon in gasoline prices.
Consumer groups already have started complaining about the recent rise in gasoline prices and are urging politicians to push oil companies to expand refining capacity.
"There isn't enough refining capacity, and that is a deliberate business decision," says Judy Dugan, director of research at the Foundation for Taxpayer and Consumer Rights, a nonprofit organization. The oil industry counters that it's more economical to build refineries in rapidly growing markets like Asia than in the U.S.
In the end, it may come down to consumers: Either they'll have to use less gasoline, or they're going to continue to pay a premium.
Write to Ana Campoy at ana.campoy@dowjones.com
