Posted on: Saturday, November 3, 2001
Crude oil prices hit lowest level in 28 months
By Brad Foss
Associated Press
NEW YORK — Energy markets have done a complete flip-flop from a year ago, with a gallon of regular gas selling for under a $1 in many parts of the country and home-heating prices expected to drop by a third this winter.
With ample crude inventories but reduced demand for gasoline, jet fuel and the distillates that power manufacturing plants, traders have sent the price of oil to $20.18 a barrel, its lowest level since July 1999.
"It's demand worries and a complete lack of faith in the credibility of OPEC," said Tom Kloza, director of the Oil Price Information Service in Lakewood, N.J.
Kloza said members of the Organization of the Petroleum Exporting Countries are not in compliance with existing quotas and that the cartel is widely assumed to be pumping 1 million barrels per day more than the official output target of 23.2 million barrels a day. The 11-member organization produces roughly 40 percent of the world's oil.
"They need to produce what they're supposed to be producing and then cut output by 750,000 barrels a day to restore the supply-demand balance," he said.
In the United States, crude supplies are nearly 10 percent higher than a year ago, according to the Energy Department, and prices for various fuels have fallen dramatically since the beginning of the year.
Consumers should expect big savings this winter, analysts said.
Natural gas, for example, is about one-third cheaper than it was a year ago at $3.25 per 1,000 cubic feet. That's because producers cranked up production during the spring and summer after prices spiked to $10 per 1,000 cubic feet last winter when supplies were low.
Natural gas is the home-heating fuel of choice for roughly 55 percent of U.S. households and consumers can expect to save about 34 percent on their bills compared with last winter, according to the Energy Information Administration, the statistical arm of the Energy Department.
The agency expects the price of heating oil, a crude derivative, to average $1.19 per gallon this winter, compared with $1.36 a year ago — a 12.5 percent decline.
The supply of heating oil, which is similar to jet fuel, has grown in recent weeks, analysts said, as refiners adjusted production after the Sept. 11 terror attacks dampened the airline industry's energy demand.
Americans are already saving considerably at the pump. The average price of regular gasoline was $1.24 a gallon at the beginning of the week, down 31 cents from a year ago and the lowest level in two years.
In parts of many states, including Georgia, New Jersey and Texas, motorists are filling up their tanks for less than a buck a gallon. The highest prices are typically paid on the West Coast and northern Rocky Mountain states.
Analysts said consumers should enjoy the lower prices while they last, though.
After all, if gasoline prices can swoon this low because of an estimated 2 percent decline in average daily demand of about 8.5 million gallons, a reversal is likely when seasonal demand picks up in the spring, said Mike Fitzpatrick, a trader at Fimat USA in New York.
The cheap gas should be available "through the New Year," Fitzpatrick said.
That's about when the output cut of 1 million barrels a day that OPEC is widely expected to announce Nov. 14 should take effect, he said.
"That's too far in the future to make a difference now," said Peter Beutel, publisher of the Cameron Hanover Energy Hedger, an industry newsletter.
Oil is so cheap these days that President Bush might order the government to pump an additional 100,000 barrels a day into the country's existing emergency stockpile of about 540 million barrels.
By comparison, at this time last year crude cost about $32 a barrel and then-President Clinton — on Nov. 10, 2000 — approved a bill giving him the authority to tap the Strategic Petroleum Reserve to help bring down prices.
