Crude Oil Prices Surge to Post-Gulf War High

World oil prices soared past $26 a barrel Wednesday to their highest level since the Persian Gulf War, as harsh Midwestern weather, U.S. refinery problems and stockpiling in Europe and the Far East caused demand to surge. Gasoline and heating oil prices also rose.

Analysts said the jump of 45 cents per barrel of crude was spurred partly by breakdowns at refineries in New Jersey and Louisiana that will limit supplies of heating oil just when freezing areas of the nation need them most. Also, a bomb scare in Staten Island, N.Y., temporarily shut a pipeline, further disrupting markets.

And although Iraqi oil has already begun to flow since a United Nations-brokered oil-for-food deal, it will take another week or more before those supplies reach U.S refineries and work to moderate prices, said John Hervey, oil analyst at Donaldson Lufkin Jenrette in New York.

Analysts described the current price run-up as a short-term phenomenon, and many are convinced that the arrival of Iraqi oil in coming weeks--amounting to 1% of daily worldwide consumption--and the onset of new oil production in various global venues will create an oil glut sometime next year.

Though California gasoline prices are insulated to some extent from the rest of the country, industry and government officials said prices at the pump could continue their slow drift upward from October lows if harsh weather continues elsewhere.

The average statewide price of a gallon of unleaded gasoline last week was $1.18, up 2 cents from the previous month. That’s still far below the peak of $1.55 a gallon in April, when refinery shutdowns caused by accidents and state-mandated modifications, combined with crude oil dislocations, caused pump prices to surge, angering politicians and consumers.

For now, severe winter weather gripping the Midwest and heading for the Rocky Mountains has caused a spike in refinery demand for crude oil. Near-term futures contracts for crude rose 45 cents on Wednesday to $26.16 a barrel on the New York Mercantile Exchange, the highest since January 1991, when the Mideast war pitched energy markets into a frenzy.

In addition to the heavy demand, supplies of heating oil and gasoline were interrupted by shutdowns of a Tosco refinery in New Jersey and an Exxon facility in Louisiana. January heating oil futures closed up 0.64 cent at 74.15 cents a gallon, and gasoline finished up 1.4 cents at 71.17 cents a gallon. Natural gas futures fell 9.5 cents to $4.075 per 1,000 cubic feet.

For now, energy prices will remain volatile, said Drew Dickson, director of research and trading at GSC Energy, an Atlanta-based futures brokerage.

“Inventories are tight enough that changes in demand will affect the price. There is no inventory to buffer the market,” Dickson said.

But Hervey said inventories will eventually be replenished by the Iraqi oil and, later, by increased production expected from the North Sea, Nigeria, Algeria, Colombia, Venezuela and the deep-water areas of the Gulf of Mexico now being developed by U.S. oil firms.

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