Lower oil prices and a boost in gasoline production have prompted the year's first drop in gas prices, with the nation's average price dropping 6 1/2 cents per gallon over the last two weeks. Analysts say that the Organization of the Petroleum Exporting Countries (OPEC) was pumping at the fastest rate in nearly four years, according to Reuters.
The weighted national average price for all three grades of gasoline fell to $2.04 per gallon June 11, after having risen more than 59 cents since mid-December, said Trilby Lundberg, who publishes the biweekly survey of nearly 8,000 gas stations in the United States, in the Atlanta Journal-Constitution. On June 15, gasoline fell another 1.15 cents to $1.14.
OPEC, which supplies more than one-third of the world's crude oil, announced that it will raise its official daily production quota by more than 2 million barrels per day (bpd) to 26 million bpd by July 1, 2004 and, if necessary, by an additional 500,000 bpd on August 1, 2004, according to the Atlanta Journal-Constitution. It meets again on July 21 to review the second stage of the deal.
Gasoline prices should stay close to $2 a gallon on average for regular unleaded in June and than fall by 5 cents to 10 cents a gallon in July, according to Guy Caruso of the Energy Information Administration. Caruso said a recent pledge by members of the OPEC oil cartel to increase production was leading to a decline in oil price, which accounts for nearly half of the cost of gasoline. Still, the average family in the United States will be paying $300 more for gasoline this year than in 2003.
"Consumers should not expect retail prices to fall back to prices seen before the recent increases," Caruso said in USA Today. "Furthermore, with low inventories, regions in the United States are still subject to potential price spikes this summer." In the Atlanta Journal-Constitution, Lundberg stated, "Whether for the rest of the summer gas prices will continue to trend down depends on OPEC's follow-through to increase oil output and how strong our gasoline demand turns out to be. We always consume the most in June, July and August."
The N.Y. Times reported that a surge in gasoline prices lifted the Consumer Price Index by 0.6 percent in May, the largest monthly increase in three and a half years. In Congressional testimony on Tuesday, June 15, federal reserve chairman Alan Greenspan said elevated energy costs have not had enough of an impact on the economy to warrant federal action. "Our general view is that inflationary pressures are not likely to be a serious concern in the period ahead," he said, according to the N.Y. Times.
According to USA Today, he appeared to base his view on the nature of current inflation. Although the increased energy costs have had some economic impact, so far, none of the increase is a result of rising labor costs, and they have not posed enough of a threat to influence the federal reserve's thinking on interest rates. "We try to focus on the whole structure of price and cost and profitability in making judgments as to whether individual price changes are significant," said Greenspan, according to the N.Y. Times.