Cost goes down to fill-'er-up

Awash in a sea of gasoline, many US service stations are being forced to reduce prices at the pump. As a result, some motorists are getting some much-appreciated relief from the recent spate of gasoline price increases.

Nationally, the average retail price of all grades of gasoline at both full-service and self-service stations dropped more than 2 cents in the last two months, after soaring 15 cents during the period from December to March, according to the authoritative Lundberg Survey Inc. Veteran oil industry analysts expect the price to drop another 1 to 10 cents by year's end.

These analysts cite several factors that have combined to pull the rug out from under gas prices. Among them:

* Reduced prices for crude oil on the world market. An analysts by Merrill Lynch estimates that a 1.6 million barrels-per-day (b.p.d.) surplus is accumulating during the current quarter. The study estimates that the free world is building toward a 101-day supply of oil in storage during this quarter -- well above normal levels. This is due in part to reduced demand for oil in the West.

Saudi Arabia, the largest producer among the Organization of Petroleum Exporting Countries (OPEC), is pumping roughly 10.3 million b.p.d. from its wells, instead of hewing to its "official" production rate of 8.5 million b.p.d. This move is acting as a counter- balance to production reductions by other OPEC members, who felt such cuts were the only way to force prices up in the face of the glut. Thus the Saudis, in an attempt to stabilize prices among OPEC members , are feeding the glut and forcing OPEC and non-OPEC oil producers alike to drop their crude prices.

* US oil refiners, paying less for oil on the "spot market" and beginning to see price reductions in newly negotiated long-term contracts, are reducing prices to their customers.

* Gasoline retailers, faced with tight- fisted, conservation-minded motorists and increasing competition from other retailers, are cutting prices -- in some cases to the break-even level -- until the market becomes stronger. According to Daniel Lundberg, publisher of the authorative Lundberg Letter, this last factor may keep further decreases modest, because most service station dealers "probably cannot reduce their margins any more."

Other analysts, however, contend that the average price of gasoline will slide 5 cents a gallon by December; a few, who asked not to be identified, say the price might even drop another 10 cents by year's end.

When President Reagan decontrolled domestic oil prices on Jan. 28, he also removed the price ceilings that the US Department of Energy had imposed on retail sales of gasoline.

But for the most part, dealers continued to sell at low margins because of the glut -- and many cut their margins more, according to the Service Station Dealers of America. The SSDA, which represents some 60,000 members, claims that most dealers margins now range from 9 to 10 cents a gallon. Six months ago, says the SSDA, the figures were 14 to 15 cents a gallon.

Industry observers add that many stations are fighting price wars in order to try maintain their share of the market.

"This is a period of fierce new competition [among dealers] in the market . . . a shake-up period," notes Mr. Lundberg, following removal of federal price controls on gasoline. He could not forecast how long it would continue.

US oil refiners, too, are in an topsy-turvy period, reflected not only in a widespread lowering of their prices but extremely poor profit showings as well.

Nationally respected energy analyst Charles T. Maxwell in his June 2 "Energy Projections" newletter, published by Cyrus J. Lawrence Inc., reports: "Earnings comparisons for the top twenty integrated companies in the first quarter of 1981 were down some 16 percent compared to last year."

Most of these losses were suffered in the refining and marketing segments of the industry, he explained. He went on to say that "some industry observers have recently been suggesting that it is simply now a matter of reducing burdensome inventories." He forecasts that the outlook for next year "does represent some improvement" in profitability.

Larry Goldstein, an oil analyst for the Petroleum Industry Research Foundation Inc., sees the gasoline glut starting to disappear by the end of the year when already lowered US refinery production comes more into balance with demand. On average, US refiners are now working at about 69 percent of capacity , down from well over 80 percent before controls were lifted from domestic crude oil, according to the American Petroleum Institute.

"Sometime in the fourth quarter, gasoline inventories will be back to a better balance with demand," he notes. Yet, he is quick to point out that currently "there's no doubt the that second and third quarter crude oil prices are going to be lower than the first quarter" -- and a drop in the retail price of gasoline of 5 cents by December "is not unreasonable."