Lower Pump Prices Spur Surge in Summer Driving

As more people cruise the roads this summer, OPEC looks to cut its oil production, raise prices.

As he gases up his Ford Econoline for a 1,180-mile drive to Seattle, Wade Mayer's glance at his Mobil station price board here tells both the good news and bad news for tourists this summer. The bad: $1.19 per gallon for regular unleaded is about 9 cents higher than the national average - a price hike prevalent in California and the Rocky Mountain West.

The good news: The average price of gasoline here and everywhere else in America - adjusted for inflation - is the lowest in US history. Don't think of this as a permanent return to the days of Beaver Cleaver, experts warn (actually, by comparison, gasoline prices in the 1950s were about $1.78 in today's dollars). Small changes in either supply or demand could dramatically alter current prices virtually overnight, they say.

But for the moment, because of warm winters in the US and Europe, currency crashes in Asia, and disagreement among OPEC producers who can't agree on production levels, world markets are awash in oil. Huge supplies and lower demand mean travelers like Mr. Mayer, despite his grumbles over higher California prices, are in the driver's seat.

"We were going to buy airplane tickets until I got out my calculator and found how much we would save by driving," says Mayer. With thousands of travelers using identical logic, the July 4 weekend - typically among the top three travel weekends of the year - promises sardine-like road conditions from Maine to Myrtle Beach to the Mendocino Coast.

"Gas prices are certainly more advantageous now than ever," says Jerry Cheske, spokesman for the American Automobile Association. National figures released Tuesday show the average price of self-serve regular to be $1.108 per gallon, 14.2 cents lower than last July 4. The same gas is most expensive in the West, averaging $1.235 per gallon, courtesy of high demand, fewer competing companies and outlets, and especially in California, higher costs of doing business.

Prices vary

The gas is least expensive in the Southeast at $1.023 - 14.7 cents lower than last year - and has dropped significantly from a year ago in every region of the country (mid-Atlantic, $1.093, down 13 cents; Great Lakes, $1.109, down 11.9 cents; Midwest, $1.07, down 17.4 cents; and Southwest, $1.171, down 15.9 cents).

"Travelers across the South are in for the smoothest, cheapest rides, but when they hit the Rockies they are in for a surprise hike," says Bill Berman, publisher of The Pump Price Report, a biweekly analysis of gas prices (available on the Internet at pump-price.com). Another reason for stiffer prices there, he says, is the cost of reformulated gasolines required by high elevation states with air-pollution-control requirements.

Another consequence of cheaper gasoline, he says: faster speeds.

"The days of cautious motoring in the 1970s and 1980s are over," says Berman. "People can drive with reckless abandon without thinking twice." Members of automobile and other travel clubs have noted average speeds well over 80 m.p.h. on long stretches of California highways, and higher in areas of Texas, Arizona, and New Mexico. Police organizations have noted it is far harder to control the average traffic speed as the number of those breaking posted speed limits increases.

"It's like the German autobahn out there," says Janeen Smith, a housewife from Amarillo, Texas, who just drove her three kids in a Ford Bronco across New Mexico and Arizona in two days. "You can't go 65 even if you want to."

But while the lower oil prices mean cheaper, faster times for travelers, they may not be in the best, long-term interest of US oil producers - and possibly motorists as well. About 430,000, low-producing (less than 15 barrels a day) so-called "marginal wells" produce about 40 percent of US oil output. But such wells are more expensive to operate and tend to lose money when prices plummet. Owners must either cap such wells with hopes that higher prices will return - an expensive process that jeopardizes the wells - or continue to pump and lose money.

"This is a disastrous situation.... At these prices about 85 percent of our wells are noncommercial," says Lester Moore, president of MEPCO Inc., in Evansville, Ind. "We are going to have to shut-in a lot of wells, about 25 percent. We don't ever want to do it but with these prices we just have to."

In the long run, observers say, such a situation hurts investor confidence and inclines the US back towards dangerous reliance on foreign oil that characterized the 1970s, when OPEC price hikes caused long lines at gas stations coast to coast.

"If we lose enough of these wells, we lose US production ... and the country becomes reliant on foreign oil which makes us more susceptible to political situations outside our control," says Scott Espenshade, economist for the Independent Petroleum Association of America.

Local producers

US producers are currently pushing Congress for marginal well tax credits which would ease cash flow for well owners who are in the position of taking wells in and out of production. Meanwhile, OPEC countries meeting in Vienna this week have agreed to cut production to boost prices. The move is similar to one introuced last March, when OPEC agreed to reduce production by 1 million barrels per day, helping lift prices temporarily until some members subverted the agreement.

"One of the reasons these price drops are continuing is that OPEC's own members have been massively cheating on production quotas," says Ed Murphy, an economist with American Petroleum Institute in Washington. "If they come out with a convincing new agreement, this situation could turn around overnight."