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Houston Chronicle: Gasoline and oil may not march in step: ENERGY

Brett Clanton,
Published: Sep 13, 2007

Gasoline prices are creeping up again, and record crude oil prices this week could push them higher, but a post-summer slowdown in gas usage may help blunt the impact of the hike.

Yet if crude prices remain at current highs, analysts said Wednesday, refiners may feel pressure to increase the selling price of gasoline to cover their costs.

Crude futures closed Wednesday at a record $79.91 per barrel after trading above $80 earlier in the day. The previous record was $78.23 just a day earlier.

The gains came after an Energy Department report showed a bigger-than-expected drop in U.S. crude oil stockpiles and declines in gasoline supplies and refinery activity. The report suggested oil supplies are tightening even as demand remains strong.

Analysts had mixed views on when or if the bump in oil prices will mean higher bills at the gas station.

“Drivers may see lower pump prices for gasoline even as they hear about crude hypothetically or actually hitting $80 per barrel, ” said Tom Kloza, industry analyst with the Oil Price Information Service in Wall, N.J.

The seasonal drop in gasoline demand and lower cost of ethanol used in gas blending could actually shave off up to 15 cents a gallon over the next month, he said.

For now, however, high oil prices will keep pressure on gasoline prices, said Mary Novak, industry analyst with Global Insight.

“It seems that any change in crude over the next several weeks will have to show up in the retail gasoline price,” she said. A $1 increase in oil could translate to an additional 2.5 cents per gallon at the pump, she said.

But gasoline is unlikely to top $3 per gallon absent an unexpected supply hit, such as a hurricane disrupting operations at key Gulf Coast refineries.

Houston price up 19 cents The national average price for regular unleaded gasoline rose about 2 cents last week to $2.82 per gallon, 20 cents higher than a year ago, according to AAA.

In Houston, the average price Wednesday stood at $2.60 a gallon, up 19 cents from last year, the motor club said.

Crude oil accounts for roughly half the cost of gasoline. When oil prices go up, refiners pay more to make fuel, wholesalers pay more to buy it and retailers ultimately pass on the added costs to U.S. drivers at the pump.

But other factors also can also drive pump prices upward. In May, for instance, gasoline prices zoomed past $3 nationwide on fears that lower-than-normal fuel stockpiles would not be sufficient to feed peak summer driving demands. Those fears turned out to be unfounded, and in July, prices fell sharply.

Something similar may be happening in the oil markets, analysts said, as traders worry about tight supplies.

“People are just making bets on the crude oil markets, using fear as a reason to do so and driving overall prices higher,” said Lanny Pendill, a senior energy analyst with Edward Jones in St. Louis.

The cost of producing a barrel of oil now is about $50, he said. That’s partly why he believes prices will fall.

Some analysts were puzzled that crude prices rose despite the Organization of the Petroleum Exporting Countries’ decision on Tuesday to boost crude production by 500,000 barrels a day this fall. The move was meant to ease oil prices so economic activity would not slow in the U.S. and elsewhere.

‘Troublesome’ prices In light of the OPEC announcement, U.S. Energy Secretary Samuel Bodman called record oil prices “troublesome” after a speech Wednesday in Washington, according to news reports. But he said he was not concerned by oil inventory levels.

Whether high oil prices are reflected at the gasoline pump should become clear soon, analysts said.

But drivers filling up at a Shell station in southwest Houston Wednesday seemed resigned to pay whatever is charged.

“It’s kind of a necessary evil,” said Tony Ponce de Leon, 31, of Sugar Land. “There’s nothing you can do about it.”

Gasoline prices will remain high as long as there are obstacles to building oil refining capacity in the United States, said Pete Hidalgo, 64, as he pumped gasoline into his Chevy Tahoe.

“There’s plenty of crude around the world, there’s just no refineries to send it to,” he said.

The average cost of gasoline for the 2007 driving season, running April though September, will come in at $2.93 per gallon, up 9 cents per gallon from last summer, the U.S. Energy Information Administration said in its short-term energy outlook report Tuesday.

Even though fuel stockpiles remain low, pump prices nationwide are expected to decline to about $2.63 by year-end, the report said.

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