The Car and Truck Fleet and Leasing Management Magazine

Gasoline Prices Stabilize

February 04, 2007

WASHINGTON, D.C. --- With the near-month crude oil futures price rising from a level close to $50 per barrel recently to nearly $57 per barrel Jan. 30, retail gasoline prices have seemingly bottomed, according to the federal government. In its weekly report, the Energy Department's Energy Information Administration (EIA) addressed the development, pointing out that the national average price on Jan. 29 remained unchanged from its Jan. 22 level. "The end of the declining trend in gasoline prices over prior weeks is generating expectations among some analysts that momentum has shifted towards rising prices," the EIA report said. "But whether any such shift persists into the spring and beyond, or lasts only a few weeks, is still an open question." Once retail gasoline prices begin rising, an upward trend could potentially last for many weeks. During the remaining winter weather, temperatures in the Northeast -- the region where much of the country's heating oil is consumed -- will be a critical factor influencing crude oil prices. "If cold weather persists in the Northeast, then crude oil prices are not likely to diminish much, if at all, in February, and gasoline prices would likely continue rising over the next few weeks," the report said. "However, by the time March arrives, if not sooner, gasoline will become the main focus of domestic markets, as demand begins to increase." From 2004 through 2006, gasoline demand in March has averaged about 200,000 barrels per day higher than in February. At least partly due to this demand increase, the U.S. retail price for regular gasoline has averaged more than 13 cents per gallon higher in March than in February over the past three years. But could a rise in gasoline prices over the next couple of weeks be temporary, with prices falling again relatively soon? "With gasoline inventories rising sharply over the last five weeks thanks to strong import volumes and domestic production, there is certainly ample gasoline on hand," the report said. "If crude oil prices were to fall back towards $50 per barrel, gasoline prices would likely flatten and eventually fall, especially if gasoline inventories remain above the average range for this time of year." While this scenario is possible, it seems less likely for several reasons, according to the EIA. Saudi Arabia has already announced plans to meet its commitment to cut production further beginning Feb. 1, and some analysts are expecting other OPEC countries to cut further as well. Also, the average range for gasoline inventories is fairly narrow. They can fluctuate from one end of the range to the other in a matter of just a few weeks. In fact, they recently went from below the range to above the range in just five weeks. "On a days supply basis, gasoline inventories are roughly in the middle of their normal range, despite the sharp build in absolute levels," the EIA report said. "This reflects the recent strength in gasoline demand, and illustrates the fragility or susceptibility of the gasoline balance to momentum shifts." For now, even if prices should rise over an extended period, the EIA said it does not expect to see the average U.S. retail gasoline price approach anything close to $3 per gallon, as it has in each of the last two years, unless there is a major disruption in infrastructure or crude oil supplies.
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