Iraqi Oil Should Lower Gasoline Price Dow Hits New High At Prospect Of Cheaper Fuel
The flow of Iraqi oil onto world markets for the first time since the Gulf War could lower gasoline prices by a nickel or more a gallon at the pumps. But don’t expect to save any money over the Memorial Day weekend.
“Gasoline prices will probably stay up for another four to six weeks, then, after the July Fourth weekend, you may see a slight decline,” said Thomas H.L. Curtis, an energy analyst for the Computer Petroleum Corp.
Wall Street reacted quickly to the news , as the Down Jones industrial average rose more than 61 points to a record 5,748.82.
The federal government predicts that a gallon of gas will eventually drop from 2 cents to 6 cents at the retail level because of the influx of Iraqi oil, reflecting a drop of $1 to $3 a barrel in the price of crude oil, said Mark Rodekohr of the federal Energy Information Administration, a division of the Energy Department.
“They should be gearing up to export between 600,000 and 800,000 barrels per day in about 30 days,” he said. The United States uses close to 18 million barrels of crude oil a day, Curtis said.
Some analysts think the delivery schedule might be a optimistic by a few weeks and, in addition, the dealers may be slow to pass the savings on at the pump.
“It took a long time for the prices to go up, the (profit) margins were squeezed,” Curtis said. “They’ll try to maintain the margins that they have now, you can bet on it.”
The futures market, which sets the price for crude oil sales down the road, did a see-saw after Monday’s announcement. The price initially dropped 79 cents a barrel on the New York Mercantile Exchange, then shot up $1.84 to close at $22.48 a barrel, still almost $3 a barrel below its April peak.
With the sales agreement anticipated for months, there was only light trading after the announcement from the United Nations that the deal had been signed.
“Then it’s a case of everybody looks at each other and waits for another broker’s phone to ring with another sale to push it down even further,” said Tim Evans, senior energy analyst for the Pegasus Econometric Group in New York. “When that phone doesn’t ring, they start to buy and before you know it, you’ve got a rally going.”
Adding to the volatility was the expiration of June contracts on Tuesday. That means that traders who sold off in recent weeks on the assumption that oil would drop further in price need to buy by the end of Tuesday in order to meet their orders.
“When it does get going in one direction or the other, it keeps going. It scares people. You don’t want to buy too soon or sell too late,” Evans said.
Also Monday, the Energy Department was holding a second round of bidding for the 12 million barrels of crude oil from the nation’s Strategic Petroleum Reserve. President Clinton announced the $227 million sale two weeks ago as a way to halt the 20-cent-a-gallon jump in gasoline prices since February. The first sale last week failed to produce a buyer because the bids were so low. Offers received Monday won’t be decided upon until Wednesday or Thursday, said Rick Furiga, deputy assistant secretary of the strategic reserve.
Iraq’s deal with the United Nations will allow Saddam Hussein to sell $1 billion worth of oil every 90 days so he can buy food and medicine for his people. It will be the first oil exports from Iraq since the U.N. imposed sanctions on Baghdad to punish it for invading Kuwait in 1990.
Jeff Eshelman, spokesman Independent Petroleum Association of America, which represents domestic oil producers who drill 85 percent of U.S. wells, called the agreement “a deal with the devil.”
“American consumers think. ‘Oh great, one step closer to lower gasoline prices,’ but really it actually creates the possibility of higher prices in the long run because what we’re doing here is becoming more dependent on another foreign source of oil and another unstable source at that,” he said, noting the United States imports more than 50 percent of its oil.
Mike Morrissey, a spokesman for the American Automobile Association, said the timing of the Iraq deal was still good news for summer vacationers.
“Prices were heading down anyway, but this extra oil gives us a bit of insurance that will protect against disruptions in the oil market,” he said.
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