Gas and oil prices take a slide toward reasonable

Energy markets have done a complete flip-flop from a year ago, with a gallon of regular gasoline selling for under a $ 1 in many parts of the country and home-heating prices expected to drop by one-third this winter. With ample crude inventories but reduced demand for gasoline, jet fuel and the distillates that power manufacturing plants, traders have pushed oil to $ 20.18 a barrel, its lowest price level since July 1999.
"It's demand worries and a complete lack of faith in the credibility of OPEC," said Tom Kloza, director of the Oil Price Information Service in Lakewood, NJ. Kloza said members of OPEC are not in compliance with existing quotas, and the cartel is widely assumed to be pumping 1 mm bpd more than the official output target of 23.2 mm bpd. OPEC members produce about 40 % of the world's oil. "They need to produce what they're supposed to be producing and then cut output by 750,000 bpd to restore the supply-demand balance," he said.

In the United States, crude supplies are nearly10 % higher than a year ago, according to the Energy Department, and prices for various fuels have fallen dramatically since the beginning of the year. Consumers should expect big savings this winter, analysts said. Natural gas, for example, is about one-third cheaper than it was a year ago at $ 3.25 per 1,000 cf. That's because producers cranked up production during the spring and summer after prices spiked last winter.
Natural gas is the home-heating fuel of choice for roughly 55 % of US households, and consumers can expect to save about 34 % on their bills compared with last winter, according to the Energy Department's Energy Information Administration. The agency expects the price of heating oil, a crude derivative, to average $ 1.19 per gallon this winter, compared with $ 1.36 a year ago -- a 12.5 % decline.

The supply of heating oil, similar to jet fuel, has grown, analysts said, as refiners adjusted production after the Sept. 11 terror attacks dampened the airline industry's energy demand. Americans are already saving considerably at the pump. The average price of regular gasoline was $ 1.24 a gallon at the beginning of the week, down 31 cents from a year ago and the lowest level in two years. In parts of many states, including New Jersey, Georgia and Texas, motorists are paying less than $ 1 a gallon.