US motorists will see higher gasoline prices this spring, averaging about $1.70/gal during the driving season of April through September, with prices peaking at about $1.76 in April, the US Energy Information Administration said.
According to its latest monthly analysis of the energy market, EIA expects pump prices to increase by 28¢/gal on an annual basis to more than $1.60/gal in 2003. But the agency expects prices to fall back toward historically lower levels in 2004. EIA said it expects gasoline to decline by about 13¢/gal over 2004, with a corresponding drop in crude oil prices of as much as $5/bbl. During that time, commercial petroleum inventories should increase to more normal levels.
But in the short term at least, EIA said that in much of 2003 motorists would be seeing much higher prices than they are accustomed to.
At the end of February, gasoline inventories moved toward the lower end of a 5 year range, which helped contribute to pump price increases, EIA said. The price of regular unleaded gasoline averaged about $1.55/gal in the last half of February, or only about 5¢/gal lower than the record nominal price set during the first half of May 2001. Adjusted for inflation, today's prices are still below the all-time record March 1981 price of nearly $2.90/gal, EIA stressed.
Uncertainty continues
Even if the situations in Venezuela and Iraq are resolved without further oil disruptions, oil stocks are expected to remain low in the US and other western oil consuming countries through most of 2003. The agency estimates that spare world oil production capacity in March outside of Iraq and Venezuela could be as low as 1.5 million b/d. And that figure could drop further, depending on how much production Kuwait may shut down temporarily if war tensions spread to its borders.
In the months ahead, EIA said there is reason to expect what it calls "substantial price volatility" in oil markets during the coming months.
Despite assurances from the Venezuelan government that exports are moving quickly back to historical levels, EIA is less hopeful.
"Although the Venezuelan general strike has ended, the strike against the oil sector continues, and the recovery in production and exports of crude and products has been slow. If the oil strike is prolonged and tensions in the Middle East continue, the chance of a price spike will remain high," EIA said.
Noting that government and opposition sources "continue to cite widely varying figures for the country's current oil production," the agency said it estimates that Venezuela's oil production levels rose from a low of 300,000 b/d at the end of December to an average of 1.4 million b/d in February, and will reach 1.8 million b/d by the end of March.
EIA further assumes in its latest monthly report that the strike will be resolved by the end of April and that enough workers will be rehired to allow Venezuela to reach 2.3 million b/d of production by the end of June.
EIA also is growing increasingly concerned that the strike may have long-term production repercussions.
"It's possible that several hundred thousand barrels per day of production capacity will be lost on a long-term basis because of the shutdown and that Venezuela will not be able to attain its pre-strike production level of 2.9 million b/d," EIA said.
Policy implications
EIA, as the independent statistical arm of the energy department, does not offer policy recommendations. But other government agencies within the Bush administration, most notably the Department of State, have said that the strike could have lasting trade and economic implications unless Venezuelan President Hugo Chávez seeks a compromise with opposition leaders.
"Until a sincere political compromise is achieved and the level of rhetoric lowered, world energy markets simply cannot view Venezuela with the same certainty that they once did, and, sadly, neither can the US. The damage done cannot be repaired overnight," Under-Secretary of State Alan Larson said Mar. 4 at New York University.
"When the Venezuelan parties show a commitment to seek reconciliation and restore their position as a reliable partner of the US, they will find a willing and ready partner in the US," he said.
