50-Cent Slide Foreseen as Drop in Demand Deflates Crude Oil

LITTLE ROCK, AR — Gasoline prices have fallen nearly 10 cents a gallon in the past week as crude oil lost steam because of weak demand in a sluggish economy.

And if crude oil prices stay at about $125 a barrel, that would mean 50-cent relief at the pumps in the coming weeks, experts say.

AAA reported Thursday that an average gallon of regular in Arkansas cost $3.890, down from a record $3.972 one week before, for a difference of little more than 8 cents. Nationwide, prices were at $4.026, down 9 cents in a week.

Crude oil for delivery in September finished up $1.05 at $125.49 Thursday on the New York Mercantile Exchange. Crude oil settled at a record $145.18 on July 14.

“What we’re seeing is a meltdown,” said James Williams, an energy economist who owns WTRG Economics near Russellville. “Crude prices have dropped more in the last nine days than they’ve gained in the past 40, so that’s clearly good news for the consumer.”

That’s news Jennifer Haywood can use.

The 20-year-old Little Rock resident who competes in Irish dancing competitions across the country filled up a Ford Focus on Thursday afternoon at the SITE gas station on Cantrell Road for $3.82 a gallon.

“I try to save as much as I can to put into my tank,” said the campus police dispatcherfor the University of Arkansas at Little Rock. “This weekend I’m going to St. Louis, and if gas gets cheaper, I can go to Orlando for regionals in December.”

Consumers can thank themselves in part for the dropping prices, said Phil Flynn, energy analyst for Chicago-based Alaron Trading Corp. “It’s the height of the driving season, and hardly anyone is driving,” Flynn said.

STABILIZING PRICES

Tom Kloza, director of the Oil Price Information Service, a Gaithersburg, Md.-based firm that tracks petroleum pricing and news for clients, wrote in an e-mail that he’s reluctant to say that the $145 oil earlier this month was the year’s high. “One or two weeks do not make a trend,” he said.

“However, there is no question that we will see retail gasoline prices continue to move lower into next week,” Kloza said. “There is much catching up to do.”

He said that on the basis of the typical wholesale-to-retail numbers, consumers could expect prices to fall to between $3.50 and $3.75.

“But one has to remember that gasoline retailers had the most rugged 200 days to start any year, so one can’t begrudge them getting a little midsummer margin,” Kloza added.

Ann Hines, executive vice president of the Arkansas Oil Marketers Association, said that it’s a huge relief to oil marketers and gasoline stations to see prices easing. “It helps our industry and it helps our customers,” she said. Marketers have been running into problems with their credit limits, she said. It used to be that they would have 10 days to pay the oil companies after picking up the product. Because the product is now so much more expensive, marketers pick up less of it and their payment is due in three days. “There is no profit in gasoline” at the retail level, she said.

Read Admire, 23, of Little Rock said gasoline prices have forced him to ride his bicycle more and even if the price dropped 50 cents, it would still be too much.

“They just jack it up and drop it down so people will think they are getting a deal,” said the University of Arkansas at Little Rock senior as he filled up his Ford sedan for $3.83 a gallon at the Arkansas 10 Shell Superstop.

According to the U.S. Energy Information Administration, the four-week average demand for gasoline ending July 18 was down 3.6 percent compared with the corresponding period a year earlier. At the same time, total gasoline stocks were at 217.1 million barrels, up from 204.1 million a year earlier.

“It’s starting to weigh on prices, the market forces are at work here, and our better conservation over the past few weeks,” Flynn said.

Mike Right, spokesman for AAA, said that not only is U.S. demand dropping, but other parts of the world are also cutting back on fuel.

Williams added: “I think we’re seeing the realization that, in fact, the economy does matter and it does matter to oil consumption… Our problems are affecting the rest of the world, and that’s going to slow consumption growth.”

POCKETBOOK PAIN

It’s also unlikely that consumers will start driving more just because prices drop a few cents, Kloza said.

“I don’t think this will bring back some of the demand we have lost because of conservation and expense and the generally sour consumer sentiment,” Kloza wrote.

Judy Dugan, research director for advocacy group Consumer Watchdog, said consumers are suffering and even a 50-cent drop wouldn’t change that. Gas is still up more than $1 from a year ago. “That’s still a shocking hit to family budgets,” she said. “Even a year ago when gas was at $3, it was a crimp in budgets.”

Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville, said that 50 cents would give people more money to spend on everything else – assuming they didn’t just start driving more again.

“When you’re looking at a 50-cent drop, I think that consumers are becoming savvy enoughto realize that we are in a prolonged period of relatively high prices even if there is a backing off,” Deck said, and people won’t go out and start buying SUVs as a result.

A couple of stations in Jacksonville and Fort Smith had the lowest prices in the state at $3.68 for regular, according to Arkansasgasprices.com, a site where consumers can report gas prices.

Metro Little Rock had the highest average prices in the state for regular at $3.877, according to AAA. Texarkana averaged $3.871, and Pine Bluff wasat $3.868. Fort Smith and Fayetteville came in the lowest, with $3.845 and $3.855, respectively.

The experts all agreed that some “future blips” in oil prices might arise but that without an adverse geopolitical event or a natural disaster, prices might be stabilizing.

“This is a signal that prices are at least moderating,” Right said. “There’s a lot of wild cards out there.”

TRADING IN

Some of those wild cards could be the commodity traders themselves, such as the Dutch trading company accused by regulators of scheming to “bully the market” by making a large number of trades at or near the end of the trading day to move closing prices.

Commodity regulators in Washington have accused the trading company, Optiver Holding, of making roughly $1 million in illegal profits by manipulating the prices of crude oil, heating oil and gasoline over an 11-day period last year.

The complaint was filed in U.S. District Court in Manhattan against Optiver, a proprietary trading fund based in the Netherlands; two affiliated funds based in the Netherlands and Chicago; and three senior company executives.

The lawsuit is certain to resonate loudly in Washington, where the Senate is in the midst of debating proposals to tackle high oil prices by curbing market speculation and where lawmakers have repeatedly demanded tougher enforcement measures.

The company did not return a phone call to its Chicago offices seeking comment.

Regulators are accusing the defendants of making 19 separate attempts at market manipulation in March 2007, involving three specific New York Mercantile Exchange contracts – for light, sweet crude oil, for heating oil delivered to New York Harbor and for gasoline, also for New York delivery.

At least five attempts were successful, according to the complaint. In three instances, it said, the illegal trading pushed prices of all three commodities lower, while the other two resulted in higher prices for gasoline and crude oil.

The lawsuit comes on the heels of a preliminary report released Tuesday by the Interagency Task Force on Commodity Markets that found that fundamental supply and demand factors – not speculation by investors – were responsible for recent crude oil price increases. The task force, led by the U.S. Commodity Futures Trading Commission, was formed in June to evaluate the cause of the recent increases in the price of crude.

Information for this article was contributed by Diana B. Henriques of The New York Times and Sean Sposito of the Arkansas Democrat-Gazette.