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Oil spike may miss the pump
Analysts say reduced demand and a boost in supplies will keep gas prices from reaching records, too.
August 13, 2004: 4:43 PM EDT
By Steve Hargreaves, CNN/Money staff writer

NEW YORK (CNN/Money) - With oil futures setting yet another record high Friday, you might expect to pay a bit more at the pump in the near future. But, according to industry analysts, that may not necessarily be the case.

Although U.S. light crude rode roughshod over previous records Friday, closing up $1.08 at $46.58, the recent surge may not translate into higher gasoline prices.

The latest data released by the U.S. Energy Information Administration (EIA) shows average U.S. gasoline prices at $1.877 as of Monday, down a penny from the week prior and nearly 19 cents from its May 24 high of $2.064.

Analysts say prices aren't likely to surge past $2 again so quickly, if at all.

"Gasoline prices were so inflated that they really needed to come down," said Jake Bournazian, an EIA petroleum economist.

Bournazian said the May rev-up in gas prices was due to fears the market wouldn't be able to support the strong demand during the summer driving season.

In response, domestic refiners increased production. Gasoline imports, usually coming from Europe and the Americas but this time from as far away as Asia and the Middle East, also rose.

Although it took shipments from Asia and the Mideast longer to arrive, when they finally did, the result was a surplus of gasoline stocks.

"Do you really need to be jacking up retail prices in response to crude when you've got such a strong supply? No."

In addition to well-stocked supplies, some analysts believe falling gas prices are a simple result of supply and demand.

"When gas prices rise then discretionary driving is curtailed," said Fadel Gheit, a senior energy analyst at Oppenheimer. "People will think twice. I was just down south and everybody I talked to was carpooling."

Gheit said if oil goes much higher or stays high for much longer, the result could be gasoline prices falling even further due to a wider hit on the economy.

"There is no doubt in my mind that not only the U.S. economy but the world economy is slowing down," he said. "By spring of next year, if (oil) doesn't go below $30 we'll have a recession. At the end of the day, people who lose their jobs aren't going to go anywhere."

But Bournazian's prediction of continued high oil prices was less kind for those with a V8 and a lead foot.

He said the current surplus should keep prices relatively stable for the next four to six weeks. After that, expect to see gasoline climb back above $1.90 a gallon if the per-barrel price of oil stays in the mid-to-low $40's. If oil goes higher, especially on sustained pipeline attacks or other unrest, gas will be back above $2 a gallon.

Oil and Gas

"Certainly, sustained increases in crude prices are going to put upward pressure on gas prices," he said.  Top of page

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