GAS price spike feared as supplies shrink; air quality standard eased for Citgo in Midwest

NEW YORK (AP) _ On the eve of the Labor Day weekend, U.S. gasoline supplies are shrinking, a possible harbinger of higher prices at the pump in the coming months. <br><br>Nationwide, gas prices are up

Wednesday, August 29th 2001, 12:00 am

By: News On 6

NEW YORK (AP) _ On the eve of the Labor Day weekend, U.S. gasoline supplies are shrinking, a possible harbinger of higher prices at the pump in the coming months.

Nationwide, gas prices are up less than a penny from a year ago. But industry data released late Tuesday showed U.S. inventories of gasoline dwindling significantly ahead of the Labor Day holiday.

The American Petroleum Institute reported that U.S. gasoline supplies shrank by 6.7 million barrels in the past week to 196.2 million barrels, or 3 million barrels below levels a year ago.

``If you're a refiner, it's a glorious end to the driving season,'' said Tom Kloza, director of Oil Pricing Information Service, a Lakewood, N.J., publisher of oil industry data. ``If you're a consumer, you're probably annoyed.''

Also on Tuesday, the Environmental Protection Agency temporarily relaxed air-quality standards on gasoline produced and sold by Citgo Petroleum Corp. in the Midwest in an attempt to alleviate a recent price spike in the region.

Citgo will be allowed to sell retailers in Chicago and Milwaukee a blend of gasoline that meets the less stringent requirements for the remainder of the summer driving season.

In exchange, the EPA said Citgo will have to pay the Treasury Department about 14 cents for every gallon it sells of the lower grade gasoline, which is cheaper to manufacture.

The move is intended to help Citgo make up for a production shortfall that began Aug. 14, when a fire forced the Tulsa, Okla.-based company to close its 160,000 barrel-a-day refinery in Lemont, Ill.

Gas prices have risen nearly 10 cents nationwide since the Lemont refinery fire. And its impact was magnified in the Midwest, where markets have been tight since January, when Premcor Inc. shut down its 80,000 barrel-a-day Blue Island, Ill., refinery to make improvements.

Drivers in Chicago and Milwaukee are paying, on average, 22 cents more for a gallon of gasoline than they did the same time a year ago, according to the Energy Information Administration, the statistical arm of the Energy Department. A gallon of gas in the Midwest is averaging $1.66, compared with a U.S. average of $1.49.

Citgo will be allowed to sell gasoline with a less stringent vapor pressure standard, which is intended to reduce the release of volatile organic compounds into the air. The compounds contribute to the formation of smog.

The EPA action ``demonstrates what can quickly be accomplished when governmental agencies and the private sector work in close cooperation,'' said W.A. DeVore, senior vice president of supply and marketing at Citgo.

Citgo, which is owned by PDV America Inc., a subsidiary of Venezuela's state-owned Petroleos de Venezuela SA, can sell the lower grade product at its own branded stations and to other independent retailers.

``The intent of this is to level the playing field economically for Citgo,'' said Bruce Buckheit, the EPA's director of air enforcement division. ``We're not allowing other refiners to do the same thing.''

Buckheit said the impact to the environment would be minimal.