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Republicans Say "Screw You " With High Fuel Prices

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  • Howard Scott Pearlman
    http://www.nytimes.com/2003/08/09/business/09OIL.html? ex=1061697600&en=780b5d1e7a1a82cf&ei=5004&partner=UNTD Fuel Prices Move Higher, and Trend Is Expected to
    Message 1 of 1 , Aug 9, 2003
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      http://www.nytimes.com/2003/08/09/business/09OIL.html?
      ex=1061697600&en=780b5d1e7a1a82cf&ei=5004&partner=UNTD

      Fuel Prices Move Higher, and Trend Is Expected to Persist
      By NEELA BANERJEE


      otice 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.

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      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 Chávez 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 Société Générale.

      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."
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