Republicans Say "Screw You " With High Fuel Prices
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.
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
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
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
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
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."