A Fuel-Good Story At Summer's End
Gas Prices Record Steepest Decline Since November

By Tomoeh Murakami Tse and Chris Kirkham
Washington Post Staff Writers
Tuesday, August 29, 2006

The declining prices of crude oil and ethanol combined with rising gasoline supplies have brought a bit of welcome relief at the pump as the summer driving season draws to a close.

Average gas prices have dropped about 15 cents in the past two weeks, to $2.87 per gallon nationwide and $2.99 in the Washington metropolitan region, Trilby Lundberg, editor of the Lundberg Survey, said yesterday. The gasoline monitor surveys more than 6,000 stations nationwide every two weeks.

The decline, based on a survey from Friday, is the largest drop since November, when prices fell 18 cents after the price increases that followed hurricanes Katrina and Rita.

And as if this weren't enough good news for consumers, Lundberg and others said more relief should be on the way, as long as crude oil prices remain stable and no supply disruptions occur.

Lundberg said in a telephone interview that the gasoline market was in a "mini-glut" state, with prices tumbling in the face of increased supply at the end of the peak driving season.

"Given other situations not confounding it . . . some further reduction seems likely from here," she said.

Lisa Craig, 47, a teacher at Holton-Arms, a private girls school in Bethesda, was thrilled to see regular gasoline selling for $3.09 a gallon at a Wisconsin Avenue Texaco station in Bethesda -- even though she was just in New Hampshire, where, she said, gas was in the $2.70 range.

"Life's got to be a little better if gas is going down," said Craig, who shuttles three carloads of children home in the afternoon. "I went, 'Wow, $3.09, that's not so bad!' And that's pathetic."

The recent price drop was particularly pronounced because this year's driving season was greeted by rising prices caused by several factors. Prices for ethanol, an additive increasingly used by refineries, shot up this year. Demand grew sharply after the Energy Policy Act passed by Congress last summer prompted refineries to switch from methyl tertiary-butyl ether, or MTBE, to corn-based ethanol as a gasoline additive. As demand rose, ethanol prices climbed to more than $4 per gallon.

The industry also was hampered by delayed repairs and maintenance because of last year's hurricanes.

Also pressuring prices was the violence and uncertainty in the Middle East and elsewhere, raising concerns about oil supplies throughout the summer.

In recent weeks, ethanol prices have dropped to about $2.30 a gallon. Worries over supply have largely subsided as oil companies have made the transition, analysts said.

Crude oil prices have dropped from near $80 a barrel to $70.61 yesterday on the New York Mercantile Exchange.

The gasoline supply situation has improved as well -- at a time when the industry is less likely to hoard it for fear of being unable to meet demand.

"They've improved right at the end of the season," said Doug MacIntyre, senior oil market analyst at the U.S. Energy Information Administration, adding that demand drops by 3 to 5 percent from August to September. "Without any major hurricanes seemingly poised to pounce on oil infrastructure . . . even a small increase in inventory is more than enough to get us through the peak demand season without a problem."

So, analysts say, barring a pipeline break, a hurricane hitting a refinery or renewed international jitters to drive up crude oil prices, consumers can look forward to further savings at the pump. Also, manufacturing costs tend to decline when some regions of the country switch to winter-grade gasoline, which will happen over the next several months. But the declines are not expected to be as steep as those of the past few weeks.

However, some motorists in the region said yesterday that they were skeptical about prices going down, adding that the recent drop was not nearly enough.

"It has to go down a lot for it to make a difference to me," said Mark Ezra, 37, a Rockville resident, as he pumped his Infiniti QX56 sport-utility vehicle's tank full of $3.29-a-gallon premium gas at the Wisconsin Avenue Texaco station in Bethesda. "This is the biggest gas guzzler there is."

Mac McLaughlin, 64, an airport shuttle driver from Falls Church, knows the effect of fluctuating prices more than most. But this month's dip won't mean much for him in the long run, he said

"It's the price of existence," he said as he filled up for $2.99 a gallon at an Exxon station at Wisconsin Avenue and Q Street in the District. "It's a little cheaper in Virginia, but you don't drive 10 miles just to save five cents. Your time is your money, too."