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Energy Department Warns Gasoline Price Drop May Be Limited

September 01, 2006

WASHINGTON, D.C. --- Though oil prices could continue their significant drop over the next few months, the Energy Department's Energy Information Administration (EIA) has warned that this price drop may be limited. "First, part of the reason prices have dropped recently is that upward pressure coming from gasoline during its peak demand season has vanished, with U.S. gasoline inventories apparently adequate to get through the upcoming Labor Day weekend, the nominal end of the peak season," the EIA said in its weekly report. "Additionally, the lack of any major refinery or petroleum infrastructure damage through August, whether due to hurricanes or other reasons, has kept gasoline markets relatively calm. Thus, with the end of the peak gasoline season behind us and the peak heating fuel season not yet here, the market may be simply reflecting the usual shoulder period forces as it transitions from summer to winter seasons, resulting in an absence of product price pressures."But with winter approaching, concerns about the future adequacy of heating oil supplies could keep upward pressure on oil prices. "With strong global demand for distillate fuel (diesel fuel and heating oil combined), given that diesel fuel markets in Asia and Europe are particularly robust, heating oil prices may rise to attract sufficient imports this winter to balance demand," the EIA said. "The fact that diesel fuel prices have not dropped precipitously, along with gasoline, is an indication that the current weakness does not extend to all petroleum product markets. In addition, many of the global situations that concerned oil markets earlier this year have not abated."For example, Iran is still indicating plans to defy a United Nations deadline to halt the country's nuclear enrichment program. Oil supplies are still being disrupted in Nigeria, concerns about oil production in other parts of the world remain, and the peak of the hurricane season is still ahead. All of these issues could keep oil prices from falling much below $70 per barrel.
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