- The Washington Times - Thursday, December 15, 2005

A record plunge in gasoline prices prompted by a flood of oil and fuel imports pushed the U.S. Consumer Price Index down 0.6 percent last month, the biggest monthly drop since 1949, the Labor Department reported yesterday.

The average price of regular grade gas is down nearly $1 since hitting a record high over $3 a gallon in September, with most of that drop occurring last month.

Analysts attribute the unprecedented 16 percent drop to a doubling of imports attracted by the high prices after Hurricanes Katrina and Rita struck in August and September, as well as to moves by the Bush administration to flood the market with crude oil from strategic reserves and temporarily suspend regulations on fuel coming in from overseas.

“The efforts of government and industry have been successful,” said Ron Gold, energy analyst with the Petroleum Industry Research Foundation Inc., adding that the fall’s extraordinary experience with gasoline prices demonstrates that the market worked well to overcome a major source of stress for both consumers and the economy.

“It shows how markets work to resolve a supply crisis,” he said. “Sharply higher prices both discouraged demand and acted as a magnet for new supply.”

Stung by pump prices over $3, consumers in September started looking more seriously at gasoline-electric hybrids and other more fuel-efficient cars and trucks, while cutting back on unnecessary driving.

Meanwhile, refineries that remained in operation after the storms, which had knocked out large portions of oil and gas production and refining operations in the Gulf of Mexico area, pushed production to the hilt to take advantage of the high prices. Imports poured into the New York harbor and other eastern ports.

The result was a rapid retreat in prices that few observers had expected, especially since nearly 40 percent of Gulf oil facilities and 25 percent of Gulf gas facilities remained shut down for repairs.

Some major facilities, like Royal Dutch Shell’s Mars deepwater-drilling platform, are expected to stay offline for another year.

Yet the price of premium crude oil quickly fell back from a record high near $70 a barrel in early September and has remained in the $60 range.

Mr. Gold credits the Bush administration’s move days after Katrina struck on Aug. 29 to coordinate the release of 60 million barrels of crude oil and gasoline from strategic reserves in the United States and Europe.

The administration also temporarily lifted low-sulfur diesel fuel regulations that have prevented imports of fuel from elsewhere around the world, as well as regulations restricting entry of the fuel into U.S. ports.

That contributed to a jump of 900,000 barrels a day in gasoline imports to 1.5 million barrels a day by mid-October — nearly twice 2004 levels. The sudden spurt of gasoline imports also helped spawn a record trade deficit during the month.

Mr. Gold said gasoline imports in particular proved to be an elixir that burst the price bubble.

Commerce Secretary Carlos Gutierrez said the big drop in prices should be a source of relief for consumers and a boost for workers, whose purchasing power has been seriously eroded this year by the jump in energy prices.

Consumers are likely to use the extra change in their pockets left by declining pump prices to spend on other items, like eating out and Christmas presents, economists say, although gas prices have climbed slightly in recent days.

“The combination of wage increases, workers taking home more of their hard-earned money, and a decline in the Consumer Price Index are having a very positive effect on our economy,” Mr. Gutierrez said.

Meanwhile, the revival of many Gulf energy facilities fueled a the biggest two-month jump in industrial production in eight years during October and November, the Federal Reserve reported yesterday.



Click to Read More

Click to Hide