Analysts: Gasoline Prices May Fall by 10 Cents

NEW YORK – U.S. gasoline pump prices may drop as much as 10 cents by July, partly because OPEC has vowed to increase production, U.S. energy analysts said Thursday.

Gasoline prices on the wholesale market are already sliding, down 16 cents a gallon since mid-May, and those discounts are likely to reach consumers in the coming weeks, the U.S. Energy Information Administration (search) said in a weekly report.

"Several key indicators suggest that gasoline prices may continue to fall in coming weeks," the EIA said.

Producer group OPEC (search), which controls 40 percent of world oil exports, agreed on Thursday to immediately lift its output limits by 2 million barrels per day (bpd), and lift them another 500,000 bpd starting in August.

OPEC's decision comes as the cartel struggles to rein in runaway oil prices that recently struck record highs over $40 a barrel on concerns over rapid global demand growth and turmoil in the energy-rich Middle East.

"Saudi Arabia and several other suppliers have pledged significant increases in crude oil production," the EIA said, adding this "would help put downward pressure on crude oil prices, which would help lower gasoline prices."

In recent summers, points out Geoff Sundstrom of the AAA (search) motorist group, spikes in gasoline prices were caused by infrastructure problems, such as refinery or pipeline glitches.

"The supply chain for gasoline is stretched incredibly thin and our clean air regulations don't allow any margin for error," said Sundstrom.

Last year, a relatively minor pipeline in Arizona caused a spike in national gasoline prices. In 2002, a big fire at a refinery in Illinois was a main cause of a spike in prices. And in 2000, a pipeline in the Upper Midwest went down, causing prices to jump in that region, which prompted a national spike.

A decline in retail gasoline prices would be a boon for 200 million drivers in the United States, many of whom are logging in more time on the roads for vacation season and dishing out more money for fuel than ever.

The EIA said any increases in shipments from OPEC nations would add to already high crude oil import levels, which last week struck the second-highest level on record and helped boost commercial crude inventories to their highest level since August 2002.

While gasoline prices may be on the way down, the EIA cautioned that drivers should not expect the low pump prices they saw before a nearly 60-cent spike this year.

"While prices could drop below $2 per gallon over the next couple of weeks, and may continue to fall thereafter, present market conditions do not provide a reason to expect prices to return to their level at the start of this year any time soon," the EIA said.

The average retail price for regular gasoline fell 1.3 cents per gallon in the week ended May 31 to reach $2.051 per gallon, 57.8 cents higher than this time last year, the EIA said.

Mike Burdette of the EIA said that the spot wholesale price was $1.33 cents a gallon on Wednesday. He said it generally takes eight weeks for movements in wholesale prices to be fully reflected in the retail price, and that the retail price is generally 60 to 65 cents higher than the spot wholesale price.

That translates to about $1.93 to $1.98 per gallon by early July.

The good news for drivers is that it only takes two weeks for 66 percent of the changes in the spot prices to be seen at the pumps, Burdette said.

Tim Evans, senior energy analyst with IFR Markets in New York, said that while gasoline prices rose sharply, their fall is expected to be slower, because distributors and retailers do not rely on an initial price drop to be sustained.