Oil Prices Surge to 9-Year Highs on Speculation of Tight Supplies

Crude oil and gasoline prices soared Monday to highs not seen since the Persian Gulf War in 1991 on speculation that producers may not boost oil output enough to avert shortages.

Oil futures passed $30 a barrel on the New York Mercantile Exchange, and U.S. drivers continued to be hit with sticker shock at the pump as the average price for gasoline increased 3.1 cents during the last week to a record $1.356 a gallon, the Energy Department said.

In California, motorists paid an average of $1.401 a gallon for self-serve regular unleaded gasoline, up nearly 2 cents from the previous week.

A year ago, the U.S. average price was nearly 44 cents a gallon lower, based on the Energy Department’s weekly survey of 800 service stations, and California’s average price was about 30 cents a gallon less. The department predicts that gasoline prices nationwide will peak at a record $1.43 a gallon this spring, ahead of the peak summer driving season.

When adjusted for inflation, however, the forecast price will be about 20% lower than the price spike experienced during the Gulf War, the department said.

Indeed, even though oil prices have more than doubled in 12 months, economists have seen scant evidence yet of serious effects on the larger economy. This reflects the fact that oil expenditures, which accounted for 8.5% of gross domestic product in 1981, have fallen to about 3%, according to the Energy Department’s Energy Information Administration.

Crude oil prices have been rising because of the success among oil-producing nations in sticking to production cuts begun nearly a year ago. Every $1-a-barrel increase in the price of oil eventually translates into a 2.5-cent jump per gallon at the gas pump.

Some oil exporters, such as Venezuela, now propose raising production after the output-cutting agreement expires at the end of March. But fear that any production increases would be slow to reach the market caused crude oil for March delivery to rise 81 cents, or 2.8%, on Monday to settle at $30.25 a barrel on the Nymex, the highest closing price since January 1991.

U.S. crude oil inventories are close to a 23-year low, and that could mean scarce gasoline supplies in coming months, traders said.

“Even if we get some additional output, there’s an imbalance and it could take some time to get new supplies into the market,” said Tom Bentz, a broker at Paribas Futures Inc. in New York.

“Supplies are tight, extraordinarily tight, no doubt about it,” A.G. Edwards analyst Bill O’Grady said. “It’s just a bull market,” he said, noting that last week the International Energy Agency warned that oil inventories were drained sharply at the end of last year and were being depleted faster now because of producers’ curbs.

Gasoline for March delivery rose 2.34 cents, or 2.9%, to 83.41 cents a gallon on the Nymex, the highest price since January 1991. Gasoline futures prices have gained 21% so far this year.

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Bloomberg News and Reuters were used in compiling this report.

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Where’s the Peak?

Prices of gasoline futures in New York jumped to nine-year highs with crude oil prices on Monday, reflecting growing fears that supplies will continue to tighten. Quarterly prices and latest for near-term futures, in cents per gallon:

Monday: 83.4 cents

Source: Bloomberg News