An international oil cartel’s decision to lower production will likely result in higher gas prices at pumps in the East Valley, experts say.
In an unexpected move, the Organization of Petroleum Exporting Countries told the oil industry it will cut excess production now and lower supplies by 1 million barrels a day beginning in April. OPEC said the combined cuts will lower production by about 10 percent, or 2.5 million barrels a day.
Already inching up since the beginning of the year, gas prices are expected to continue to rise because of the cuts, AAA Arizona said. The decision to reduce supplies comes at a bad time because Arizona will start its annual changeover from winter to summer fuel beginning in March, a move that typically curbs supply, driving prices up.
"I don’t think you’re going to see gas prices go down anytime soon," said AAA spokeswoman Kim Pappas-Miller, adding that "it’s anybody’s guess" whether motorists will see prices of $2 or more per gallon.
If Valley prices do hit $2, it will be for the third time in a year. In March, prices reached $2 a gallon for regular selfserve unleaded. Industry representatives blamed the impending invasion of Iraq, a shutdown of production in Venezuela, Nigerian oil strikes and a cold winter that sent demand up.
In August, a pipeline rupture sent gas prices spiraling to record levels. East Valley drivers paid as much as $2.12 a gallon on average after the break.
Gas prices have increased since the beginning of the year, when they averaged $1.50 per gallon in the East Valley and $1.48 nationally. The state average was $1.66 per gallon Tuesday, and the national average was $1.52.
In the East Valley, the average price Tuesday for gas was $1.64 a gallon. A year ago, it was $1.45. In Scottsdale, the average was $1.69 per gallon, up 19 cents from a year ago.
OPEC agreed to the twostage reduction in output to try to keep oil prices stable when warmer weather erodes demand in major importing countries.
North Sea Brent crude for March delivery was up 69 cents at $29.80 in London, while March contracts for light sweet U.S. crude were up 60 cents at $33.43 in trading on the New York Mercantile Exchange.
John Felmy, chief economist at the American Petroleum Institute, said it’s too early to tell if gas prices will rise.
"We really won’t know what the impact will be until we see what they actually do," he said of OPEC. "They’ve got a long history of saying one thing and then perhaps not living up to it. Overproduction or cheating is the term for it."
It’s also unknown how demand and economic growth in the United States and China will affect prices, he said.
"It’s not good news for consumers," Felmy said.
Pappas-Miller said OPEC’s move is "definitely going to put upward pressure on gas prices, and that’s going to happen throughout the country."
She said the cut in production was surprising, given crude oil is trading at more than $33 per barrel.
OPEC generally prefers to see crude oil trading in the range of $22 to $28 per barrel, she said.
In March, refineries will begin changing to a summer fuel blended with ethanol that helps decrease air pollution. This will be Arizona’s first summer using ethanol.
Supply problems were created last year when California, which supplies 70 percent of Arizona’s gas, switched to ethanol for the first time and Arizona continued to use gas made with MTBE.
Felmy said that every dollar increase per barrel on the cost of crude results in an increase of 2.4 cents per gallon at the pump.