Sunday, November 11, 2001

Drop in gas prices should hold for holidays

By James Pilcher
The Cincinnati Enquirer

        Less than 1 1/2 years after flirting with $2 for a gallon of gas, the Tristate could soon be seeing the lowest average prices for the holidays in three years.

        Local and national experts agree that — barring any interruption of supply by events overseas — the Greater Cincinnati average could soon drop below $1 for a gallon by Thanksgiving. The drop is credited to an increase in supply and reduced demand due to the economy and more people staying closer to home after Sept. 11.

        “Unless something dramatic changes over the next month or two, there won't be much change, and there probably will be some downward trend in prices,” said Terry Fleming, executive director of the Ohio Petroleum Council, the trade group that represents Ohio gas and oil companies.

        On Friday, the daily average for a gallon of regular unleaded in Greater Cincinnati was $1.08, according to AAA's daily fuel gauge. In Northern Kentucky, the price was $1.16, while the national average was $1.21. In October alone, wholesale gas prices dropped 21.2 percent, the largest fall in 12 years, according to the Labor Department's Producer Price Index.

        Local retail prices are down from this year's high of $1.85 a gallon reached on May 14, as recorded by Lakewood, N.J.-based Oil Price Information Service (OPIS). Prices hit $1.91 in Cincinnati June 2000, when most of the Midwest saw prices above $2 a gallon.

        This downward trend means that gas in the Tristate could be in the 90-cent range on average for the holiday driving season for the first time in three years. According to OPIS, prices hit 98.4 cents a gallon on average for Cincinnati on Nov. 19, 1998, with prices not breaking $1 until the following January. Overall, the five-year low was 86.5 cents

        a gallon, reached on Feb. 25, 1999, with June 2000's spike marking the five-year high.

        Many Tristate neighborhood stations, especially those in the northern suburbs, have begun selling gas for as little as 97 cents at gallon. The difference between 99 cents a gallon and even just $1.50 is $7.14 for a 14-gallon tank fill-up.

        “I can't remember the last time I saw it under a dollar,” said a jubilant Valerie Betley of West Chester, who filled her tank at a United Dairy Farmers in her neighborhood, where gas was 97.9 cents a gallon for regular unleaded last week.

        Experts link the decline in gas prices directly with a small but perceptible decline in demand that was under way before the Sept. 11 attacks, because of the sluggish economy. That decline in demand then accelerated because of the attacks.

        Whether the lower prices will drive more Americans to drive over the coming holidays — raising demand and, eventually, prices — remains to be seen. AAA estimates that the number of people traveling 50 miles or more by car for Thanksgiving will be down 1.6 percent compared with last year.

        Rick Krah of Colerain Township was pleasantly surprised late last week to find 97-cent gas to fill his sport utility vehicle at a Marathon station in his town, but he said he's not tempted to extend his driving because of cheap prices.

        “The prices probably won't affect our Thanksgiving plans,” he said. “We were planning on staying home anyway.”

        Then there's supply. According to the American Petroleum Institute, the oil industry's trade group, the United States has 8 percent more gas on hand than at this same time last year.

        The Organization of Petroleum Exporting Countries last week cut production by about one million barrels a day to help stabilize crude oil prices, which have dropped to below $20 a barrel.

        But further cuts are not expected, because OPEC doesn't want to reduce demand more by deepening the world recession, meaning the current surplus will probably continue.

        The combination of lower demand and increased supply translates into lower prices for all oil products, including gas, nationwide. For example, short-term wholesale gas prices dipped below 55 cents a gallon last week.

        The differences in supply and demand may appear minor, said Tom Kloza, publisher of OPIS, an independent daily newsletter covering the oil industry.

        “But it is a tremendous variation, kind of like if your (body) temperature is off by 2 percent. It has exponential ramifications for the whole organism,” Mr. Kloza said. “If we had a 2 percent spike in demand, we'd see prices above $2 easily.”

        Frederick P. Leuffer, an oil company analyst with the Wall Street firm Bear, Stearns and Co. Inc., said every 10 cent change in the price of gas affects the nation's disposable income by $13 billion annually.

        Experts offer one caveat, however: If anything happens overseas that threatens or actually affects supply, all bets are off when it comes to gas prices.

        “If there is a supply inter ruption, prices will fly up, but such interruptions probably will be brief if any,” Mr. Leuffer said.

        So consumers are relishing the current trend of lower prices.

        Last week, Jim Touris took advantage of two kinds of UDF fuel and treated himself to an ice cream cone after filling his pickup truck tank.

        “I give myself an occasional reward,” the West Chester resident with a grin. “I'm spending my savings, but I'd rather have it go to my gut than to the oil companies.”

        Enquirer contributor Jenny Callison assisted with this report.


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