Officials- Gas prices likely to continue declining

WASHINGTON -- After falling nearly a dime in three weeks, gasoline prices are expected to keep sliding to a national average of $1.56 a gallon this summer thanks to lower oil prices and optimism about the war in Iraq, the government says.

The Energy Department's statistical agency revised its price forecast sharply downward Tuesday to reflect the recent fall in crude oil prices. But it also warned of uncertainties that could cause prices of both crude oil and gasoline to rebound.

The price of crude, which hit a high of nearly $40 a barrel on Feb. 27, was around $28 a barrel on the New York Mercantile Exchange on Tuesday. It has dropped by about 20 percent since the war began in Iraq.

A month ago, before the war in Iraq, the agency predicted gas prices would average more than $1.70 a gallon through the summer, hitting 1.76 this month.

Instead, gasoline prices have dropped about 10 cents a gallon over the past three weeks from a high of $1.73 a gallon in early March. The national average was $1.63 a gallon on Monday, according to the EIA.

"I believe we have seen the peak," agreed Kyle Cooper, an energy analyst for Citigroup in Houston.

But he said there are still so many uncertainties -- from the pace of recovery of Venezuela's oil industry and problems with Nigerian oil supplies to questions about Iraqi exports -- that the trend might not hold up.

And OPEC producers may pull back on production when they meet April 24 amid their concern over declining prices. The 10 OPEC countries, excluding Iraq, pumped an average of almost 26.34 million barrels a day on March, according to Platt's, or 2.4 million barrels a day over their agreed quota.

Government and private analysts noted that overall U.S. crude inventories remain low and gasoline stocks are even lower to where even modest supply problems could cause prices to spike at the pump.

"You still have very tight gasoline inventories and it's going to take quite a while to replenish them," said John Kingston, global director for oil for Platt's, a subsidiary of McGraw-Hill.

Guy Caruso, head of the Energy Department's Energy Information Administration, said the industry faces "an uphill battle to meet (gasoline) inventory requirements" for this summer when demand is expected to increase by about 1.6 percent over last summer.

Because of the tight gasoline stocks, the drop in prices is not expected to be as sharp as the drop in crude oil prices.

Crude oil is about $10 a barrel cheaper today than it was during the price runup in the weeks before the start of fighting in Iraq, equivalent to about a 24-cent-a-gallon drop in gasoline cost, according to analysts. But gas prices actually have declined only about 10 cents a gallon during the period.

The lag, if it continues means higher profits for refiners who are now buying cheaper crude. "A lot of refiners are banking on very good margins this summer," said Kingston.

The $1.56 a gallon national average for gasoline, being forecast by the EIA, is still 17 cents higher than gas cost last summer, but close to the prices that motorists paid at the pump in the summers of 2000 and 2001.

And the EIA report cautioned that gasoline prices are likely to range widely in different parts of the country. Motorists in California, for example, are expected to pay about 50 cents a gallon more than the national average.

Caruso said that California actually has a bit higher gasoline inventories than the rest of the country, but prices are expected to stay substantially higher there because of the state's transition away from the MTBE gas additive and some refinery problems.

------

On the Net:

Energy Information Administration. www.eia.doe.gov

Organization of the Petroleum Exporting Countries (OPEC) http://www.opec.org/