This Summer's Drivers Will Find Cheap Gas

Quick fix for economy, but oil patch pinched

TOURISTS driving down Interstate 95 to their Disney World vacations got a welcome surprise recently when they passed through Georgia. Gasoline was selling there for as little as 83.9 cents a gallon.

With the summer driving season just ahead, experts say Americans should enjoy rock-bottom prices for gasoline right through Labor Day.

Bargains will be even better for motorists in lightly taxed states like Georgia.

The benefits of cheap fuel go far beyond the gas pump. Falling energy costs helped jump-start the economy last year, and they are still helping to power the expansion now under way.

Cheap gasoline, natural gas, and coal are fueling strong revivals by automakers, steelmakers, and road contractors, and boosting the bottom line for dozens of other industries, from motels to vacation resorts. Low energy costs are also keeping inflation in check.

The downward trend in prices is painful, however, in the Texas-Louisiana-Oklahoma oil patch. And for happy American consumers, the only unanswered question is: How long will the good times last?

Larry Goldstein, president of Petroleum Industry Research Associates Inc., in New York City, says prices have probably bottomed out. He now sees petroleum prices moving upward - but not very much.

The gradual uptick should continue in 1995 as economies improve in Europe and Japan. West Texas intermediate crude oil, which recently climbed past $17 a barrel, could average $18 or $18.50 next year, Mr. Goldstein says.

The impact on motorists if that happens? About 5 cents a gallon.

That's the good news. The bad news is that the US Energy Information Administration (EIA) says if prices remain low for very long, two unfavorable things could happen.

US production drops

In the oil states, investments in exploration would decline even further. Production from domestic oil fields, which once led the world, is dropping rapidly.

The second fallout would be even greater United States reliance on imported oil. In the month ending April 8, US crude oil production was estimated at 6.663 million barrels a day, while net imports were 6.612 million barrels per day. Soon a majority of the oil used here will be foreign.

Worldwide, oil markets remain as unpredictable as ever. Prices depend on supply - but also on other economic factors, and on politics. From Russia to Saudi Arabia to Mexico, the political climate can sharply affect output and prices.

The most graphic example is Iraq, potentially one of the world's largest oil producers. Because of the embargo imposed during the Persian Gulf war, Iraq's oil remains untapped by world markets; but it could go back on line quickly.

If that happened, prices could drop - perhaps sharply. Even without Iraq, world oil production, which decreased in 1993, is expected to rise by more than 400,000 barrels a day in 1994, and 1 million barrels a day in 1995.

Russia also remains a significant unknown. That nation depends on oil for much of its foreign currency earnings. But a combination of lower prices and falling production (down 1.1 million barrels a day in 1993) are helping to devastate its economy. Output may dip another 700,000 barrels a day in 1994, and 270,000 barrels a day in 1995.

Helping to offset Russia's decline is a 500,000-barrel-per-day rise in production from the North Sea fields between Great Britain and Norway. The Organization of Petroleum Exporting Countries (OPEC) will also boost output by 400,000 barrels per day this year, and 1 million barrels next year, according to US officials.

The other major factor in energy prices is demand, and there the news is sometimes surprising.

For example, the US burned less petroleum last year (17.1 million barrels a day) than it did in 1988 (17.3 million barrels a day). While demand could rise to 17.7 million barrels a day this year, US consumption is still well below the amounts once predicted.

One reason the US is becoming oil-stingy is the improved performance by the nation's auto fleet, as exemplified by the big Lincoln Town Car made by Ford Motor Company.

In 1975, a Lincoln weighed exactly 4,000 pounds, and could travel just 12 miles on a gallon of gasoline (combined city/highway driving).

Miserly Lincoln

In 1994, the Lincoln is even bigger, at 4,039 pounds. But with a new engine, a more aerodynamic design, and other improvements, it gets 24 miles to the gallon.

Similarly, everything from home gas furnaces to refrigerators have been redesigned to save energy during the 21 years since the Arab oil embargo.

Jay Hakes, EIA administrator, says in his latest annual report that if America were still doing things in the 1990s the way it did in the 1970s, energy use would be 50 percent higher by the end of this decade.

Even more improvements are possible, Mr. Hakes says. In American homes, for example, so many good ideas are coming along for appliances that residential energy use could easily be reduced by another 25 percent by 2010, he says.

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