NYTimes.com Article: Fuel Prices Move Higher, and Trend Is Expected to Persist
- This article from NYTimes.com
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Interesting comment as well on the effects of "downsizing" and union-busting in Venezuela....
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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
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
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
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
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
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
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."
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