At pump, does hope lie ahead?

By Jack Money

Published: June 23, 2008

Oklahoma motorists paid an average of $2.41 a gallon for their gas in 2006. In 2007, the average climbed to about $2.70.

During the first half of 2008, they’ve paid an average of about $3.26 gallon, but that number will quickly soar as prices move toward $4 a gallon.

Motorists wonder if they’ll see gasoline prices below $3 a gallon again.

It’s not likely, said a number of industry experts contacted by The Oklahoman.

Only in a deep recession, one said. Maybe if a weak economy and high unemployment teamed to bring down consumption, said another.

One possible answer might be government intervention in excessive speculation. But in the end, to keep up with rising demand, it might take finding oil fields the equal of Iran and Qatar every year.

“Consumers are unhappy and refiners are not making money, but oil producers, large and small, domestic or foreign, public or private, are making record profits, and financial speculators are making a killing,” said Fadel Gheit, managing director of oil and gas research at New Yorkbased Oppenheimer & Co.

Gas prices, he explained, are set really by the price of oil. When oil costs $134 a barrel, there’s not much room for profit after refining costs and taxes in the downstream supply chain, even with gasoline prices at or above $4 a gallon, Gheit said.

Gas prices dropping below $3 a gallon likely would happen “only in a deep recession,” he said.

Motorists can expect in the future that gasoline prices could decline by about 20 cents a gallon for every $10 reduction in the price of a barrel of oil.

But Gheit believes future oil prices are in the hands of the U.S. government. Optimistic outlook

Chuck Mai, spokesman for AAA Oklahoma, is in the camp of those who think the price eventually will fall.

“It’s been said that the cure for high gasoline prices is high gasoline prices,” Mai said.

Market forces could push gasoline prices lower through the sale of alternative-fuel vehicles, motorists’ decision to drive less, and continued development of alternative fuels, he said.

To Mai, gasoline prices in Oklahoma and the nation are “outrageously high.”

“Yes, I do believe gas prices will fall below $3 in Oklahoma. But it won’t happen until we see a dramatic drop in crude oil prices on the futures market,” he said.

A slim hope

Steve Agee, an Oklahoma City University economist who also is president and chief operating officer of Agee Energy and chairman of the Oklahoma Energy Resources Board, believes motorists can hold out at least slim hope that prices could head substantially lower — but not soon.

A weak economy with rising unemployment could significantly drop fuel consumption in the country, he noted.

“The price of crude oil, of course, would have to drop pretty significantly in a market that is being driven, at least somewhat, by speculation,” Agee said. “If we have a market reversal ... that could act to drive the price of crude oil and gasoline,” Agee said.

Over a longer period, a substantial build out of alternative electricity sources, such as the 45 new nuclear power plants being called for by Republican presidential hopeful Sen. John McCain, might push the overall energy market lower, Agee also suggested. The key to lower pricing

Bruce Bell, chairman emeritus of the Mid-Continent Oil & Gas Association of Oklahoma, said the key to forcing oil prices lower is to make more oil than the world is consuming.

Bell noted there have been some major projects under development during the past 10 years scheduled to come online soon.

Some already were supposed to be operational, but are taking longer than expected, he added.

“If we can actually increase world production to 88 million or 89 million barrels a day from the 85 to 86 million barrels a day we are consuming, then yes, we will see a dramatic drop in the price of oil,” Bell said.

Still, Bell isn’t sure.

Sue Ann Hamm, manager of crude oil marketing at Continental Resources Inc. in Enid doesn’t see gas prices of less than $3 a gallon as being very likely.

Gasoline prices are cemented to oil prices, and were it not for a recent jump in worldwide refining capacities, gasoline prices would be 75 cents a gallon higher than they are now, Hamm said.

The main factor impacting oil prices, she said, is that production from existing fields is dropping by at least 6 percent each year.

And while new oil finds are being discovered and developed, Hamm said at least one field capable of producing 5.11 million barrels a day — the daily output of Iran and Qatar now — must come online every year to stop the slide in production.

Also, the U.S. no longer is impacting demand as it once did because much of its industrial manufacturing moved out of the country, she said.

Today’s prices are “not a temporary spike,” Hamm said. “I truly believe that when the public has the facts before it, the country will use its resourcefulness to adjust and move forward.”

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