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Gasoline Prices Take 'Scenic Route' Downhill

By Daniel B. WoodStaff writer of The Christian Science Monitor / July 8, 1996



LOS ANGELES

Miles Gobbons' Toyota is running on empty after a four-day, auto vacation through northern California. But the plumber from San Pedro, Calif., might get some extra mileage off his own fumes:

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"I couldn't believe the gas prices," he says, ticking off a list that went from $1.45 a gallon near Fresno, to $1.60 outside Sacramento, and even $1.72 near Yosemite National Park. "I won't be going anywhere else at least through Labor Day," he says.

Mr. Gibbons is among American travelers who are feeling the sting of higher gasoline prices this summer. The national average - at $1.30 for a gallon of self-serve, regular unleaded fuel - is 7.5 cents more than a year ago, the highest price since the Gulf war in 1991.

But the good news is that after the most dramatic one-month rise in half a decade - nearly 20 cents during April - prices have leveled off, and in most places begun to ratchet downward.

Over the peak

"Prices took the superhighway on the way up, but will be taking the slow, scenic route on the way down," says Jerry Cheske, spokesman for the American Automobile Association in Orlando, Fla. AAA's mid-June report shows that after three months of rising gasoline prices, the average price dropped about a half cent per gallon. Analysts expect the trend to continue through Labor Day.

"The peak is over, and we can expect a long, steady decline," says Jay Ecklund, a national accounts executive for the Computer Petroleum Corp., a gas-pricing information service in St. Paul, Minn.

The 20-cent rise in April has been attributed to the supercold winter of 1996, which depleted inventories. Oil suppliers were loath to restock their winter-depleted reserves at March price levels because of speculation that large amounts of Iraqi oil would soon flood world markets, driving prices down. But the Iraqi oil - embargoed until Iraq complies with the terms of the Gulf war cease-fire agreement - has not yet materialized.

Owing to laws of supply and demand, the low inventories drove prices sky high when Americans' demand for fuel began to increase with summer vacation travel. Regional price variations - stemming from varying state taxes, regulations, and vagaries of demand - put the biggest onus on gasoline-hungry Western states, where prices average $1.45 per gallon. Southeast states, by comparison, have the lowest regional average at $1.21.

Whither tax cut?

Despite complaints from travelers such as Gibbons, gasoline prices have moved off the national political radar. Moves in Washington to help consumers by rolling back the federal gasoline tax by 4.3 cents per gallon stalled in the Senate after passing the House.

"[Former Senate majority leader Bob] Dole's retirement from the Senate has probably killed that bill," predicts AAA's Washington analyst, Bill Jackman. "There is no impetus to keep it going now."

Another bill, introduced by Rep. John Kasich (R) of Ohio last week, proposes to cut federal gasoline taxes by 12 cents by 1999. But no one expects that legislation to have an effect on prices any time soon.

Import of Iraqi oil

Some analysts say the stalemated Iraqi oil sale is keeping fuel prices higher than they would otherwise be.

The sale was stalled recently when Iraqi leader Saddam Hussein said he wanted to use oil profits to purchase oil-drilling equipment and military spare parts, rather than use the money for humanitarian assistance, as outlined in strict United Nations guidelines. According to US news service reports from the Middle East, a limited amount of oil is expected to begin flowing from Iraq within a week.

But others say the amount of Iraqi oil to be sold - less than 1 billion barrels - will have little effect on prices.

"The amount they are talking about wouldn't fuel Massachusetts for a day," says Mr. Jackman. He says recent moves by American oil companies to reduce inventories to save money - US reserves are down from 215 million barrels a year ago to 200 million today - may keep prices higher than in recent years.

But he and others note that Americans are paying less per gallon in real terms than in 1960.

If the Iraqi sale does go through, about $2 billion worth of oil will be added to world markets over six months. By some estimates, the addition of the Iraqi oil could trim prices for wholesalers by $3 per barrel.

But before any oil is sold or trade deals are concluded, the UN must approve an Iraqi distribution plan and draw up procedures governing exports. Iraq's oil minister said Saturday he expects those actions will take the UN one week.