U.S.

Summer Gas Glut

By CBSNews.com staff CBSNews.com staff

July 27, 2001 / 6:38 PM EDT / CBS

Over the last four weeks Americans have been guzzling gas like they're giving it away, reports CBS News Correspondent Cynthia Bowers.

"There has never been a four-week period where motorists have used more gasoline. We're using well over 9 million barrels a day of gasoline," said Tom Kloza of the Oil Price Information Service.

That's nearly 3 billion gallons a week; yet there's no talk of a fuel shortage. In fact, refiners are facing a tremendous glut.

"This is equivalent to Christmas time for retailers, said Bill O'Grady, oil industry analyst for A.G. Edwards. "And here's what they have to do: They have to clear about 20 million gallons of gasoline inventory by Labor Day."

It was only a few months ago that analysts forecast there might not be enough gas to fuel the summer driving season; dire predictions that helped drive prices to record highs. The week of May 14, the national average for regular unleaded topped off at $1.71. Refiners were spinning "crude oil" into gold, with profits of more than $27 per barrel. Then suddenly the bottom fell out; today that same gallon of gas averages $1.40 and refiners are barely breaking even.

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"They had a feast or bacchanalia, if you will, the first five months of this year. Since then its been a Somalian desert," said Kloza.

In an unprecedented move, refiners are cutting production in summer by as much as 5 percent – and they aren't alone. OPEC says it will trim production by a million barrels a day in an attempt to slow the free-falling price of crude.

But the cutbacks by the oil companies and the cartel aren't expected to have much impact. Gas prices could slide even lower this fall. That good news at the fuel pump should extend to the furnace, as home heating oil prices are forecast to be 10 to 15 cents per gallon below last year.

But that doesn't mean there's not a price to be paid down the road. Analysts point out the same conditions that drove the cost of gas to its highest level ever this spring, will still be there next spring.