Crude Oil Price Again Hits Record
Oil prices climbed to another record and the cost of gasoline hit a fresh high in California on Monday amid strong demand, worries about the nation’s fuel supplies and security threats in Saudi Arabia, the world’s largest oil exporter.
After reaching $64 during trading Monday, the price of U.S. benchmark crude for September delivery closed at $63.94 a barrel, up $1.63 on the New York Mercantile Exchange. That eclipsed Friday’s record close of $62.31 a barrel. However, when adjusted for inflation, oil is still about $20 a barrel below its 1981 peak.
“Setting a new record in oil is like a broken record -- it keeps happening over and over again,” said Phil Flynn, senior market analyst for Alaron Trading Corp. in Chicago. “I think we’re on a path to hit $70 a barrel.”
Flynn and others said the price surge was triggered in part by plans to temporarily close the U.S. Embassy in Saudi Arabia in response to what the embassy said was a “threat against U.S. government buildings in the kingdom.”
With worldwide oil production near capacity and global demand headed upward, traders have become hypersensitive to any news or event that could endanger production and tip the balance, analysts said. That includes, in addition to potential problems in Saudi Arabia, hurricanes, labor disputes or a showdown with Iran -- another major oil exporter -- over its nuclear activities.
Still, some industry experts note that those production risks and the oil market fundamentals are not appreciably worse than they were at the end of last year, when oil was trading at around $43 a barrel. That includes most of the factors that analysts typically look at, such as demand levels, inventories, threats to production -- especially in the Middle East -- and the ability of exporters to quickly ramp up extra production, said Steve Enger, an oil analyst at Petrie Parkman & Co., an oil industry investment bank.
“So it’s confounding in that regard,” Enger said. “[Oil] just keeps going up.”
The situation was no better on the gasoline front, as retail pump prices in California and nationwide climbed to new highs.
In California, the retail average rose Monday to $2.601 for a gallon of self-serve regular, up 5.2 cents in the last week, according to a survey by the federal Energy Information Administration. That average beat the statewide record set in April by less than a penny.
Nationwide, the average price of regular gasoline jumped to $2.368 a gallon Monday, up 7.7 cents in the last seven days, the administration said. The previous U.S. record was $2.328 a gallon, set in mid-July.
The big story in California, however, continues to be the cost of diesel, which has been soaring ever since a fire last month cut production at Chevron Corp.’s El Segundo refinery. The incident hit the state hard because recent diesel exports to Chile had depleted reserve supplies.
California’s statewide average climbed to $2.943 a gallon Monday -- an unprecedented increase of 28.6 cents over the last week, according to the Energy Information Administration’s survey data.
A separate survey from AAA on Monday listed the state’s average diesel price as $2.979 a gallon, with averages above $3 a gallon in Merced, Redding, San Francisco, San Luis Obispo/Paso Robles and Yolo County.
“Three-dollar diesel is a big deal. There’s no two ways about that,” said David J. Hackett, president of Stillwater Associates, an Irvine consulting firm that has studied the California fuel market. “A couple cargos going out [of California] wouldn’t normally be a big deal, but it’s been a big deal.”
A string of refinery outages from Texas to the Midwest has reduced fuel production and given an extra push to retail prices outside California, analysts said.
“A lot of these older refineries are having trouble ... and there’s no spare capacity,” said Philip Verleger Jr., an industry consultant and senior fellow at the Institute for International Economics.
The high prices for oil and its byproducts, he added, continue to be a reflection of strong demand fueled by strong economies. Thus far, the strength of the housing market, job growth and other factors have more than offset the economic drag from rising energy costs, Verleger said.
“I think it’s a bubble, and I think the oil bubble will break when the economy breaks,” he said.
