Oil Prices Falling As Driving Season Ramps Down

After a protracted period of time that saw Newtown area gas prices topping out at $2.29 per gallon or more for unleaded regular, the cost for a fill-up has finally ebbed back under three bucks. That local move reflected a national trend as oil prices fell this week with the close of the high-demand summer driving season.

The news came on the heels of an announcement by a trio of oil companies led by Chevron Corp. that a newly developed petroleum pool deep beneath the Gulf of Mexico that could boost the nation’s reserves by more than 50 percent.

A test well indicated it could be the biggest new domestic oil discovery since Alaska’s Prudhoe Bay a generation ago. But the vast oil deposit roughly four miles beneath the ocean floor won’t significantly reduce the country’s dependence on foreign oil and it won’t help lower prices at the pump anytime soon, analysts said.

“It’s a nice positive, but the U.S. still has a big difference between its consumption and indigenous production,” said Art Smith, chief executive of energy consultant John S. Herold. “We’ll still be importing more than 50 percent of our oil needs.”

Chevron on Tuesday estimated the 300-square-mile region where its test well sits could hold between 3 billion and 15 billion barrels of oil and natural gas liquids. The U.S. consumes roughly 5.7 billion barrels of crude oil in a year.

It will take many years and tens of billions of dollars to bring the newly tapped oil to market, but the discovery carries particular importance for the industry at a time when Western oil and gas companies are finding fewer opportunities in politically unstable parts of the world, including the Middle East, Africa and Russia.

The proximity of the Gulf of Mexico to the world’s largest oil consuming nation makes it especially attractive. And it could bring pressure on Florida and other states to relax limits they have placed on drilling in their offshore waters for environmental and tourism reasons.

In other developments, petroleum industry analysts anticipating OPEC, which meets next week, to maintain current output levels however.

Tropical Storm Florence formed far out in the open Atlantic and could strengthen into a hurricane by the weekend, but forecasters said mid-week that it was too soon to tell if the storm would reach the United States.

Markets were also watching developments over Iran’s nuclear program. Talks meant to give Tehran a last chance to avoid United Nations sanctions over its nuclear defiance were postponed last Wednesday, with a senior Iranian envoy saying “a procedural matter” had caused a delay of several days.

Light, sweet crude for October delivery fell 15 cents to $68.45 a barrel on the New York Mercantile Exchange. The contract had fallen 58 cents to $68.60 a barrel Tuesday, the lowest settlement price since June 13.

Citigroup analyst Tim Evans said the Organization of Petroleum Exporting Countries, which meets Monday in Vienna, will most likely keep its production quota steady because it “doesn’t want to produce a further price spike that might bring world criticism down on its head and hurt demand. It is willing to accept a minor surplus in the market and some moderation in price.”

Gasoline futures recovered slightly after dropping to a six-month low the previous day as the passing of Labor Day signaled the end of the summer driving season. Gasoline futures were up 2.55 cents to $1.67 a gallon mid-week.

The US Energy Department will release its midweek domestic fuel inventories report on Thursday. Analysts expect it will show crude oil and gasoline stocks fell in the week ended September 1.

Oil prices have fallen in recent sessions on the lack of developments in the standoff between the United Nations and Iran, who defied the UN’s deadline to stop enriching uranium that could be used to produce nuclear weapons.

A more subdued forecast for this year’s Atlantic hurricane season has extended the tumble in the energy markets.

But Eurasia Group energy analyst Greg Priddy said in a research note this week that the recent downtrend in prices may not last because of supply concerns related to Iran and Nigeria.

“Political risk from Iran’s nuclear ambitions remains a factor,” he said, “and the market may be too optimistic in discounting the probability of sanctions.”