$1.94: Gasoline prices going, going down

Roger Fillion and Darrell Proctor, Rocky Mountain News

Published January 18, 2007 at midnight

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Gasoline prices in the Denver area have dropped below $2 a gallon at some stations and could be headed toward lows not seen in more than a year.

Experts point to sliding prices for crude oil, the key ingredient in gasoline. Crude prices rallied Wednesday but only after touching a new 19-month low amid uncertainty about OPEC's future production plans.

While motorists are expected to see some additional price relief at the gasoline pump, most experts don't expect oil prices to drop significantly further.

More than a dozen stations in the metro area were charging less than $2 a gallon for unleaded regular, some as low as $1.94, the Web site DenverGasPrices.com reported Wednesday.

"In the short term, you'll see more widespread sub-$2 gasoline at the retail level," predicted Bryant Gimlin, energy risk manager at Fort Lupton-based Gray Oil Co., a wholesale distributor of gasoline and diesel.

"We'll see retail prices in the the $1.90s - maybe in the $1.80s. But it will be short-lived."

Across Colorado, AAA reported Wednesday that the average price for unleaded regular was $2.169 a gallon, down from $2.200 a month ago and $2.273 a year ago.

The last time statewide gas prices were below $2 a gallon was on March 8, 2005, when they averaged $1.999 a gallon, according to AAA Colorado.

The state's record high, by contrast, was set last Aug. 11, when prices across Colorado averaged $3.076 a gallon - just below the all-time inflation-adjusted U.S. high of $3.08 a gallon in March 1981, according to the U.S. Energy Information Administration.

Crude oil prices have come under pressure in recent weeks because mild weather in the Northeast has curbed demand for heating oil. Investors also have been bailing out of crude, betting prices were headed lower.

More recently, prices plunged Tuesday after Saudi Arabia's oil minister said there was no need for the Organization of Petroleum Exporting Countries to hold an emergency meeting to mull more cuts in production.

On the New York Mercantile Exchange on Wednesday, crude oil for February delivery jumped $1.03, finishing at $52.24 a barrel. Oil futures earlier had touched $50.28, the lowest intraday price since May 25, 2005.

Prices are down 21 percent from a year ago and have fallen 33 percent from the record $78.40 reached on July 14, 2006.

The $50 level remains a significant psychological support level for crude oil, experts said.

"If we see crude under $50, it's quite likely we'll see gasoline at under $2," said Steve Douglas, general manager of supply and marketing at Suncor Energy (USA).

Suncor owns both of Colorado's oil refineries, in Commerce City, and supplies about 32 percent of the state's gasoline requirement. Suncor also sells gas retail through its 43 Phillips 66 stations across the state.

Looking ahead, Douglas said sub-$2 gasoline would become more widespread here if crude oil prices were to stabilize at around $50.

Tom Kloza, an analyst at Oil Price Information Service in Wall, N.J., downplayed any "hype and hysteria about $30 to $40 barrel crude or a return - yet - to an era of cheap energy."

Kloza and others expect the approach of the summer driving season ultimately will push prices upward.

Still, Kloza wrote in an e-mail that gasoline prices at or below $2 would become more widespread in the near future.

"We are seeing an escalation of the down trend, and under $2 a gallon will be common in most states other than the West Coast in the next few weeks," he said.

Five answers to questions about gas prices

1. Why are gas prices falling?

Crude oil prices have dropped because mild weather in the Northeast has lessened demand for heating oil. Also, Saudi Arabia's oil minister this week said OPEC wasn't ready to cut oil production.

2. Why do pump prices seem to fall so slowly, even with big drops in the price of crude?

A rise in crude triggers an increase in the wholesale price of gas that station owners pay. When the price of gas drops, station owners can make a profit by lowering prices more slowly.

3. Will prices go lower?

Gasoline futures have been trading lower, though they rose less than a cent to finish at $1.3786 per gallon Wednesday. Analysts say it's likely prices will drop at least a few more cents per gallon.

4. When will prices go up?

Colder weather in the Northeast - which would drive up demand for heating oil - is taking hold after a very mild start to winter. That will send prices higher, as would any OPEC production cuts. And prices always rise in the spring.

5. When was the last time the statewide average price dipped below $2 a gallon?

According to AAA Colorado, the last time was March 8, 2005, when it was $1.999.

fillionr@RockyMountainNews.com or 303-954-2467

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