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$3 gas -- is it here to stay?
Experts say retreat from record oil prices is near, but relief could be modest, and brief.
September 8, 2005: 7:17 AM EDT
By Chris Isidore, CNN/Money senior writer

NEW YORK (CNN/Money) - The pain of $3 at the pump could end soon for many Americans, but the respite in gasoline prices may be modest -- and only temporary, energy experts said Wednesday.

In any event, gasoline prices rarely fall as quickly as they go up, so consumers should get used to higher prices at the pump.

The disruptions to gasoline supplies and U.S. refining capacity that helped drive gasoline prices to record highs are being fixed. But the wider-than-normal gap between wholesale and average retail prices was driven in large part by those supply disruptions, according to the Geoff Sundstrom, a spokesman for AAA.

"With each passing day, based on what we're hearing about the industry being restarted, this current environment will ease," said Sundstrom.

He said that there is normally about a 60-cent difference between wholesale prices and retail prices, with the difference going to distribution, marketing and profits for station owners. But the gap has risen to nearly $1 in the last week after Katrina, he said.

And it could be a while before prices fall back to around $2.60 a gallon, where they stood on Aug. 26, before the storm hit.

"We may be a couple of weeks away from seeing meaningful relief," he said.

In commodities markets, gasoline futures fell Wednesday along with crude oil prices ahead of the weekly U.S. fuel inventory due Thursday morning.

Crude oil futures rose less than gasoline futures after Katrina, and have fallen much more quickly, retreating to pre-Katrina levels on Monday.

But Sundstrom said that oil companies are keeping many gasoline stations on limited allocations of motor fuel, prompting station owners to raise prices more quickly, and bring them back down more slowly.

Some independent station owners have seen only a fraction of their normal supplies and there have been scattered reports of stations running out of gas.

"Basically what is happening is the industry is trying to stop a run on wholesale gasoline by gas stations," said Sundstrom. "The gas station owners don't want to under price the market and possibly run out of gasoline."

Richard Karp, spokesman for the American Petroleum Institute, said the industry group can't give any forecasts on prices or spreads between wholesale and retail prices.

"Clearly the hurricane's impact on the refining and distribution network has impacted prices," he said. "As the situation improves, as it has over the past week, it'll impact the parts of the country positively that have felt the greatest impact."

But while many of those station owners' supply limits on gasoline are being lifted as more normal operations resume, other experts say it's possible that the resumption of production at refineries along the Katrina-ravaged Gulf coast could take longer than expected.

Some say there could be a new climb in crude oil and gasoline prices ahead, even if no more storms hit the region.

"I think within a couple of weeks, (gas) prices will revert to pre-Katrina levels," said A. F. Alhajji, a professor at Ohio Northern University. "But I also believe oil prices will go up again."

Alhajji points to the example of a year ago, when Hurricane Ivan hit the Florida panhandle on Sept. 21, 2004. It is credited with lifting crude oil futures to what was then a record high of $55.67 on Oct. 25, a full month later, as the full impact of the storm on supplies became more apparent.

Alhajji said one thing that may spare consumers from a rebound in gasoline prices above $3 a gallon is that there are growing imports of gasoline, rather than just crude oil, in reaction to Katrina's impact.

He said there was a trend toward importing more gasoline even before the storm and the hurricane could help fuel that trend. But he said it's too early to say if the increased imports are enough to keep pump prices in check.

"When it comes to gasoline, it's hard to predict," he said.

Oil analyst Peter Beutel, president of Cameron Hanover, said it's difficult to say what will happen to gasoline, though he also expects some relief at the pumps in the coming days.

"It's going to take a long time before we know exactly how to look at this, what effect Katrina is having long-term," said Beutel. "I would like to say for now at least the worst is behind us. What tomorrow brings, particularly on the weather front, remains to be seen. We're still in a tight situation."

For more on the oil shock of 2005, click here.  Top of page

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