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NYTimes.com Article: Fuel Prices Move Higher, and Trend Is Expected to Persist

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  • rickrise@earthlink.net
    This article from NYTimes.com has been sent to you by rickrise@earthlink.net. Interesting comment as well on the effects of downsizing and union-busting in
    Message 1 of 1 , Aug 9, 2003
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      This article from NYTimes.com
      has been sent to you by rickrise@....


      Interesting comment as well on the effects of "downsizing" and union-busting in Venezuela....

      rickrise@...

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      Fuel Prices Move Higher, and Trend Is Expected to Persist

      August 9, 2003
      By NEELA BANERJEE






      Notice that recent rise in prices at the gas pump?

      Fuel prices have risen over the last two weeks, and
      analysts warn that the increase may be an early signal that
      prices of gasoline and heating oil could stay higher than
      usual through the end of the year, in large part because of
      chronically low stockpiles of crude oil and petroleum
      products in the United States.

      The average retail price of regular gasoline is about $1.54
      a gallon, about 2 cents higher than a week ago and 14 cents
      more than a year ago, according to the Energy Information
      Administration, the analytical arm of the Energy
      Department.

      The main factor in higher gasoline prices is the price of
      crude oil, which reached $32.85 a barrel during trading in
      New York yesterday, its highest point since March 18, two
      days before the start of the war in Iraq. It closed at
      $32.18 a barrel, down 21 cents.

      "Crude oil, I think, will stay around $30 a barrel for the
      remainder of the year," said John Cook, senior oil
      economist at the Energy Information Administration. "I'm
      looking for relatively high prices for gasoline and heating
      oil."

      Consumers are only now becoming aware that gasoline prices
      are edging higher, just as many prepare to leave on
      vacation, said Geoff Sundstrom, a spokesman for the
      American Automobile Association. Drivers generally begin to
      complain when prices are considerably higher, closer to $2
      a gallon, but the relatively high price of fuel has now
      caught most consumers by surprise, Mr. Sundstrom said.

      "Strictly speaking from the consumer side, a lot of
      Americans thought that as things got more and more settled
      in Iraq, its oil would make its way back to the world
      market and that oil supplies would be more, not less," he
      said.

      Iraq may be among the most important of a host of factors
      keeping inventories low and prices high.

      Supplies in the United States dropped to alarmingly low
      levels in the winter as a year of reductions in output by
      the Organization of the Petroleum Exporting Countries and
      then a general strike in Venezuela crimped global output
      and compelled refineries to draw down petroleum stockpiles.


      Since then, inventories have not rebounded to comfortable
      levels, industry analysts say, in part because demand for
      oil, despite the stop-and-start economy, has grown more
      than expected.

      Oil traders and consumers thought that exports from Iraq
      would resume almost immediately after the war and replenish
      supplies, driving prices lower. Now, more than three months
      after President Bush declared an end to the war, the Iraqi
      oil industry is pumping only about a million barrels a day,
      less than half its prewar output, and exporting oil only
      sporadically. While the war left the oil sector largely
      unscathed, postwar looting has decimated the industry, and
      persistent sabotage of pipelines and other installations
      has delayed exports.

      In Venezuela, exports have begun to slip, further
      tightening global oil supplies. In July, Venezuela pumped
      2.58 million barrels a day, although its OPEC quota is 2.92
      million barrels a day, according to Platts, an oil industry
      newsletter.

      After the nationwide strikes in Venezuela earlier this
      year, the government of President Hugo Ch�vez fired about
      half the work force at the state oil company and then
      boasted of bringing back oil production, which had dwindled
      to a trickle during the work stoppage.

      Venezuela succeeded in keeping up exports for a while, but
      the damage from the strike has now overtaken the industry,
      analysts say. A sharply reduced work force has made it
      harder to run fields and installations. More important,
      Venezuela's geologically and technologically difficult oil
      fields are lacking for investment, and output there is
      falling, analysts say.

      "Venezuela has very complex old fields near the Lake
      Maracaibo area that some former oil ministers have said
      need about $4 billion in investment a year just to keep
      production stable," said Jan Stuart, vice president for
      energy research at Fimat USA, the commodities trading arm
      of Soci�t� G�n�rale.

      Without such investment, output could decline by 10 percent
      to 25 percent a year at such fields, Mr. Stuart said. "It's
      clear that government hasn't been able to make that kind of
      investment," he added.

      Production from another OPEC member, Indonesia, has been
      steadily declining, and the 10 voting members of the cartel
      have gradually reined in some of their overproduction this
      summer, which has also eroded supplies.

      In the fall, Mr. Cook and other analysts said, bottlenecks
      might develop in the United States' refining network and
      lead to even higher prices. Some refineries will be taken
      out of service for a few weeks for routine but necessary
      maintenance.

      And in New York and Connecticut, Mr. Cook said, refiners
      will begin to add ethanol rather than the additive MTBE to
      gasoline to reduce emissions. "When that kind of change is
      made, markets are always tight," he said, "so that could
      affect prices, too."


      http://www.nytimes.com/2003/08/09/business/09OIL.html?ex=1061435631&ei=1&en=9ced55f591ab8c35


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