DEMAND for oil eases, though gas prices higher

Saturday, May 12th 2001, 12:00 am
By: News On 6

LONDON (AP) _ Sputtering growth in much of the world has dampened demand for crude oil, but a spike in U.S. gasoline prices to an all-time high has kindled fears of another budget-busting summer for motorists, a respected energy study said Friday.

However, in its monthly energy report, the International Energy Agency played down the likelihood of severe shortages at the pump during the peak summer driving season. Refiners are better prepared this year than last to meet the expected surge in demand, and imported gas has helped to meet short-term needs in the United States, where fuel prices have risen most sharply, it said.

The Paris-based IEA is the energy watchdog of the Organization for Economic Cooperation and Development, a group of the world's richest countries.

The unpredictability of crude supplies clouds the outlook for gasoline prices, it said. North Sea crude production is likely to decline due to seasonal repairs to oil rigs in that region, and Iraq _ a major OPEC producer _ continues to operate outside the cartel's agreements to manage output.

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world's oil, will review its current output target in June.

``In all likelihood, the cycle of uncertainty will continue, with price volatility the end result,'' the report said.

A recent surge in retail gas prices has already taken many American motorists by surprise. U.S. gas prices rose by an average of 8.58 cents over the two weeks ending May 4, reaching a new high of $1.76 per gallon, according to the latest Lundberg Survey of 8,000 service stations. The numbers are not adjusted for inflation.

Gas prices are higher still in Europe, where most governments levy stiff taxes on fuel.

June gasoline futures dropped 2.40 cents to $1.0501 a gallon Friday in midday trading on the New York Mercantile Exchange. Light, sweet crude for June delivery rose 3 cents a barrel to $28.55 on NYMEX.

In London, Brent crude from the North Sea fell 29 cents to $28.19 a barrel in trading on the International Petroleum Exchange.

The IEA study argued that refiners in North America, the No. 1 market for both oil and gasoline, appear to be ``better positioned'' to deal with summer demand than they were this time last year.

``I hope they're right,'' said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London.

Refining bottlenecks have contributed to the recent surge in gas prices, Gignoux said. Part of the problem is that refiners are constrained as to how much crude they can process into gasoline because no new refineries have been built in the United States since 1976, he said.

Still, Gignoux was cautiously optimistic about the outlook for pump prices this summer.

``It looks pretty bad right now, but we're seeing the worst,'' he said. ``The perception is worse than the reality.''

Demand for oil, particularly in North America, grew more slowly than expected during the first three months of the year. Demand totaled 76.7 million barrels per day _ 630,000 barrels a day less than what the IEA had forecast in April.

The struggling U.S. economy will limit this year's growth in North American demand to just 1 percent instead of 1.5 percent as predicted earlier. Asian economies are slowing even more abruptly, the study said.

Average oil production has also decreased, with output in April down 900,000 barrels a day from the March level of 77.1 million barrels.

Even though gasoline inventories are still low, motorists should have little to fear for the summer so long as there are no major disruptions or delays in getting newly refined gas to market.

``A gasoline crunch,'' the IEA said, ``may not necessarily occur.''