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Gasoline prices fall to lowest since May

The downward trend will continue in the near future, experts say, but the mild relief could be short-lived.

August 19, 2008|Ronald D. White | Times Staff Writer

Gasoline prices have fallen to their lowest levels since May nationwide and in California, the Energy Department said Monday. Among the factors pushing prices down: falling demand and indications that Tropical Storm Fay would steer clear of Gulf of Mexico petroleum facilities.

The price of a gallon of self-serve regular gasoline dropped 6.9 cents to an average of $3.740 nationally, according to the Energy Information Administration's weekly survey of filling stations. That's the lowest since May 12, but 95.5 cents higher than the same Monday a year ago.

California motorists saw prices fall 8.1 cents to an average of $4.037 a gallon, the cheapest since May 19, but still a staggering $1.175 above the year-ago price.

Experts said the downward price trend would continue in the near term, as crude oil futures fell an additional 90 cents Monday on the New York commodities market to $112.87 a barrel, more than 23% below the record of $147.27 set in July. But they differed sharply on their longer-term predictions. Some suggested that this was the start of a collapse in energy prices, while others predicted that the mild relief would be short-lived.

"If we can avoid a major storm and other problems, I see no reason why oil can't drop back below $100 and gasoline return to less than $3 a gallon nationally," said Phil Flynn, vice president and senior market analyst for the Alaron Trading Co. in Chicago.

But some experts noted that motorists were not the only Americans who were cutting back. Refineries, they said, had also scaled back their production rates and were leaving the country with a slim margin for error if a storm does hit the Gulf.

"I think we have seen most of the move downward," said Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey. "Refiners are capitalists, too, and the safety margin has been removed in terms of supplies. If we have a major refinery shutdown or a bad storm, there's the potential to head right back up again."

Flynn said the drop in prices was a sign that they had finally risen to unsustainable levels and that drivers were making fundamental changes such as moving closer to their jobs and taking other steps to reduce their use of gasoline.

One motorist trying to make such a change is Greg Kimble, a postproduction visual effects supervisor who lives in the Miracle Mile area. He's been loath to get rid of his pride and joy -- a 1969 LeMans-blue Chevrolet Impala convertible with a white top. Kimble named the car after his grandmother, Mable.

On Monday, Kimble said he had decided to try to gut the car's internal combustion engine and have it replaced with an electric engine. Kimble said he would be happy with performance at the level of the General Motors EV1, an electric car that was introduced in the late 1990s and discontinued in 2003. He found it at least mildly irritating that GM had dumped the EV1 now that interest in buying it would be higher than ever.

"If they had been forced to produce the car, they'd be in the catbird seat now instead of losing billions every quarter," Kimble said

Despite such shifts in driver attitudes, some analysts, such as Kloza and John Kilduff, vice president of risk management at MF Global in New York, found troubling signs in other numbers.

In separate interviews, each noted that August was traditionally the time when heating-oil distributors begin storing fuel to make sure that they have enough on hand to meet winter weather demands. Because of that, gasoline supplies normally fall as more crude oil is diverted to store up for winter needs.

The Energy Department said last week that gasoline inventories had dropped by 6.4 million barrels, or 3.1%, to 202.8 million barrels. That was more than analysts expected with refineries operating at about 85.9% of capacity. Another significant drop in supplies is expected when the Energy Department releases new numbers later this week.

Both analysts said the shift to winter fuel storage and reduced refinery activity left motorists more vulnerable to price increases linked to refinery accidents or storm damage to petroleum facilities.

Kilduff added that there would be renewed demand for oil globally once the Summer Olympics in China end next week. China purposely idled many factories to reduce air pollution during the Games.

"We're looking for China to ramp up their factories and for a new level of higher global demand on supplies," he said.

--

ron.white@latimes.com

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