June Rise, Late-Summer Fall

After uptick, retail gas prices expected to decline, oil markets permitting, says EIA

Published in CSP Daily News

WASHINGTON -- U.S. drivers will see gasoline prices at the pump rise during June, but prices could decline in July and August, the government said, according to a Reuters report.

The federal Energy Information Administration (EIA) said retail gasoline prices will increase over the next few weeks to reach the projected June average of $2.16 a gallon. The national pump price this week jumped 1.9 cents to $2.12 a gallon, the first increase in eight weeks, reflecting a rise in crude oil costs.

After bottoming out at $47 a barrel on [image-nocss] mid May, U.S. oil prices have climbed back to $55. The price for crude accounts for about half the cost of making gasoline.

The EIA said gasoline prices may stabilize and even decline slightly during July and into August. But the agency warned that with oil markets tight and little spare production capacity, a disruption in oil supplies or petroleum infrastructure could send gasoline prices 20 cents higher. Any major refinery outage or pipeline disruption or sudden change in petroleum product stocking patterns, enhances the near-term price volatility of crude oil and petroleum products, the EIA said in the most recent This Week in Petroleum ( http://tonto.eia.doe.gov/oog/info/twip/twip.asp), its review of the oil market.

The agency pointed out that oil traders are already concerned about the forecast for an active Atlantic hurricane season that started June 1, which could interrupt operations at oil platforms in the Gulf of Mexico. Thus, while EIA's general expectation is that the average gasoline price for the rest of the summer will be slightly above this week's price level, we explicitly recognize the potential for considerable volatility in gasoline prices this summer," the agency said.

To view the EIA's June Short-Term Energy Outlook, click here.

Meanwhile, Saudi Arabia has plenty of oilmore than the world is likely to needalong with an increasing ability to refine crude oil into gasoline and other products before selling it overseas, a top Saudi official said.

The world is more likely to run out of uses for oil than Saudi Arabia is going to run out of oil, Adel al-Jubeir, top foreign policy adviser for Saudi Arabia's de facto ruler Crown Prince Abdullah, said Wednesday in an interview with the Associated Press.

Al-Jubeir dismissed speculation, including in a recent book, that the country was hiding the true picture of its oil reserves and that it may have far less than publicly assumed. He said Saudi Arabia has proven reserves of 261 billion barrels, and with the arrival of newer technology could extract an additional 100 billion to 200 billion barrels. We will be producing oil for a very long time, he said.

Saudi Arabia now pumps 9.5 million barrels of oil daily, with the capacity to produce 11 million barrels a day. The country has pledged to increase daily production to 12.5 million barrels by 2009, and the nation's oil minister said last month the level of 12.5 million to 15 million barrels daily could be sustained for up to 50 years.

High oil prices benefit the Saudi economy in the short run, but al-Jubeir said his nation wants a stable price that will not hurt consumers so much that they reduce their energy demands.

The problem for both the Saudis and the United States is what happens after the oil is pumped. If we send more oil to the United States and you can't refine it, it's not going to become gasoline, al-Jubeir said. The United States has not built a refinery since the 1970s, and other markets have similarly outmoded or limited refining capacity. Environmental concerns and local opposition make it unlikely new U.S. refineries can be built quickly, even with the current gas price crunch.

Saudi Arabia has partly stepped into the breach, with new refineries being built inside the kingdom as well as in China and soon in India, al-Jubeir said.

The country has also invested in gas stations, part of a strategy of going downstream from oil production to distribution, al-Jubeir said. We continue to do it, and we have one of the largest refining and distribution systems in the world, he said.