FREE ESSAY ON OIL IN APRIL 2000

OIL IN APRIL 2000

W A S H I N G T O N, April 6 - The good news for consumers is gas prices are anticipated
to drop this summer. But the bad news is the decline will be slow.
With an increase in international oil production as a backdrop, the Energy Department
today dramatically revised its forecast for summer gasoline prices. The agency said
prices should peak later this month and begin dropping sometime in May, averaging about
$1.46 a gallon throughout the summer. 
Even Cheaper Fall Prices
And there's even more good news: Gasoline prices may dip lower still by fall, according
to the agency. Prices may fall to a national average of $1.39 after Labor Day, the
department's Energy Information Administration said in its revised short-term forecast.
"By then I expect we will have started to see some economic growth deterioration and I
think from there we probably will see demand start to come under some pressure," said
Peter Beutel, president of Cameron Hanover, an energy risk management firm in
Connecticut. "So, I think we probably will see prices closer to $1.30 or maybe even
$1.25." 
What Happened to the $2 Estimate?
Just a month ago, the Energy Department said even with increased oil production, gasoline
prices were expected to soar to a national average of as much as $1.80 a gallon and
likely reach $2 a gallon in some places by July.
So what's changed between now and then? A key international oil meeting in Vienna,
Austria.
The EIA in its latest forecast assumed additional oil would begin hitting the U.S. market
by June as a result of a decision March 28 by the Organization of Petroleum Exporting
Countries. OPEC agreed to boost production by as much as 1.7 million barrels a day.
Other non-OPEC producers also have said they would increase production. And production
increases mean refilled petroleum stocks and lower prices for oil products including
gasoline.
"We are more optimistic today. Some of the tightening of the market has improved," said
EIA Administrator Jay Hakes.
Nationally, the average cost of regular grade gasoline was $1.52 a gallon in March, with
the average for all grades, including premium, a nickel higher, the agency said. 
Revisions Still 25 Percent Higher
But don't get too excited just yet.
The agency's latest revision is still 25 percent higher than summer prices a year ago.
The average motorist is expected to pay about $170 more for gasoline this summer than
last, according to the EIA.
Additionally, according to the new forecast, gasoline stocks are likely to remain at the
lower end of the normal range through the summer.
Worries about stocks aside, the latest gas price revision is good news for the Clinton
administration that has been fretting over the prospects of gasoline prices soaring to $2
a gallon this summer and additional potential shortages. But Energy Secretary Bill
Richardson has said repeatedly that with the additional oil production from OPEC and
other producers, prices should gradually recede. 
Strong Summer Demand for Gas
The department's latest price forecast also assumes no refining problems with refineries
running at nearly 97 percent capacity through the summer. If there are refinery
shutdowns, prices would spike higher, the agency said.
And although summer gasoline prices will be 25 percent higher than last year, demand is
expected to remain strong, exceeding summer demand a year ago. The agency predicts
refiners should have no trouble meeting the increase, barring any major refinery
shutdowns.
The report also predicted that crude oil prices will continue to drop for the remainder
of the year, assuming continued increases in world production.