Supply-driven surge in crude prices bodes ill for motorists
A surprise decline in U.S. crude supplies pushed oil futures to $112.21 a barrel Wednesday before settling at $110.87, both records that could doom drivers to even higher pump prices.
Predictions of $4 gasoline have already come true at a smattering of service stations around California, including a Chevron in downtown Los Angeles where self-serve regular began the day at $4.139 a gallon before rising to $4.199.
Wednesday’s $2.37 price jump for the May crude contract probably won’t be the end of the surge, with some traders and analysts predicting oil as high as $120 a barrel in the coming days. Gasoline, heating oil and jet fuel also set records in futures trading and some spot markets. Retail gasoline and diesel prices are at or near records across most of the country, according to AAA’s daily survey of fuel prices.
“These are apocalyptic numbers,” said Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey. “These increases are just tremendous.”
Runaway energy prices are being felt throughout the U.S. economy.
Atlanta-based UPS Inc. and Memphis-based FedEx Corp., the two giants of overnight package delivery, this week lowered their quarterly earnings outlook. Both cited high fuel costs as one of the main reasons. Smaller businesses are also taking a hit, and some consumers are making tough choices.
“Fuel prices are killing our business,” said Bruce Fishman, a 51-year-old Tarzana resident who runs a printing company.
“I have salesmen on the street who have to drive. Our freight bills for deliveries are going through the roof, and we know this is more than just a temporary bump. It is having a severe impact,” Fishman said, adding that he would have to raise prices to compensate.
Fishman’s 53-year-old wife, Michele, is a real estate agent and a self-professed performance car aficionado. Her previous vehicles were big, comfortable and luxurious: a BMW 750il and a VW Phaeton. But they also forced her to buy gasoline every four days.
“I just could not stand having those stupid gas bills,” said Michele Fishman, who now owns a car she never would have given a second glance a year ago: a Toyota Camry hybrid. But it’s a car that she fills up just once every two weeks.
“It’s amazing. It feels so good,” she said.
Three Democratic Congressmen wrote in a letter to President Bush on Wednesday that more had to be done. Edward J. Markey of Massachusetts, Rahm Emanuel of Illinois and Peter Welch of Vermont urged the president to stop filling the Strategic Petroleum Reserve, which they said was at 96% of its capacity, and to release some of its oil.
“Americans are pleading for help at the pump, and the Bush administration refuses to answer the call,” said Markey, who is chairman of the House Select Committee on Energy Independence and Global Warming.
Oil jumped Wednesday after the Energy Department reported an unexpected decline in U.S. crude inventories of 3.1 million barrels from the previous Wednesday.
Supplies of gasoline and distillates also fell.
Some analysts questioned the significance of the numbers.
Calling the drop “smoke and mirrors,” Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago, said that the decline stemmed partly from a temporary shutdown of Gulf Coast seaports because of heavy fog last week, reducing imports.
“It’s not like we’re having a problem getting crude out of some foreign source, but the market has such a bullish attitude that it’s still driving up the price,” Flynn said.
Another reason for the surge was the flight of investors out of stocks and into oil and other commodities at a rate that “is unprecedented in terms of anything I have seen in 15 years on Wall Street,” said John Kilduff, vice president of risk management at MF Global Ltd. in New York.
Not every expert is convinced that oil will stay in the stratosphere. Some cited warning signs that prices could quickly fall below $100 again.
“I keep hearing from professional traders who are getting out of the oil market because it is just too volatile,” said Sean Brodrick, a Florida-based natural resource analyst for the e-mail investment newsletter Money and Markets.
“When you scare away the pros,” Brodrick said, “you know you’re looking at a real roller coaster ahead.”
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