Experts predict drop in summer gas prices

Tuesday, June 8, 2004 | 11:43 a.m.

SUN STAFF AND WIRE REPORTS

Gasoline pump prices that reached record peaks last month are declining in the wake of increased oil production by foreign sources and lower prices for crude oil, just in time for summer travel, experts say.

But while some oil analysts are predicting drops nationwide to below the $2 plateau for a gallon of regular unleaded, do not expect to see Las Vegas prices go so low, experts warn.

The national average for regular unleaded should be "well below $2 a gallon by next weekend," predicted Tom Kloza, veteran oil analyst at Oil Price Information Service, and could drop to $1.75 before rebounding to records again in August.

The Energy Information Administration's weekly survey Monday showed the national average for unleaded regular at $2.03, down from $2.05 a week earlier -- the second consecutive week the price dropped. Averages were down everywhere but in the Northeast.

Motorists' club AAA also shows Nevada at $2.28 today, down from the record $2.30 a week ago, and Las Vegas at $2.27, down from the record $2.28 early last week.

"It (Kloza's prediction) means about a nickel decline," Sean Comey, spokesman for AAA Nevada, said. "However we are starting from a much higher mark than the rest of the country. So what might look like a bargain for the rest of the country will still look pretty high to us.

"Still, this is a positive trend. We've not seen too many of those lately."

Because of inflation, gasoline today would have to be $2.93 a gallon to match the record $1.42 set March 1981. By contrast, current foreign prices are about $4.50 in Japan and $5.80 in Europe.

The price of crude oil, which accounts for about 45 percent of the price of gas, rose 17 cents to $38.66 a barrel at the close of New York trading Monday as speculators began buying what had begun to seem like cheap oil after recent $41 prices.

Comey said the rule of thumb is that every $1 per barrel up or down translates to about 2.5 cents at the consumer level.

"The Saudis and others increasing production of oil has helped," Comey said.

Wholesale gasoline was $1.20 a gallon, up 2.35 cents.

Comey, noting that Nevada gasoline prices were up 35 percent since beginning of the year, said: "What I'll be waiting to see is if prices decrease after the summer season. Typically, prices fall after the Labor Day weekend. If they don't fall that could be troubling."

Fred Rozell, OPIS' retail gasoline expert, said: "We could see prices back around $1.60 by Thanksgiving. Demand decreases, we change back to cheaper-to-make winter-blend fuel, and that opens us up to more foreign supplies of finished gasoline. Many foreign refiners are not sophisticated enough to make the summer fuel."

While price drops sound good, "don't go out and buy that huge SUV you've been eyeing," Kloza says. Pressure from strong demand, limited refinery capacity and increasingly expensive clean-air fuel that drove peak prices aren't lessening, and "$3 gasoline will be a possibility" next year, he says.

Sun reporter Ed Koch and USA Today contributed to this story.