Oil Price May Make Dip in Inflation Short-Lived
Crude oil briefly touched $30 a barrel on Friday--the first time it crossed that threshold in nearly eight weeks--after oil ministers from OPEC members Saudi Arabia and Venezuela and non-OPEC partner Mexico signaled that the cartel probably won’t boost production further when it meets next month.
The ministers said late Thursday that no change in output is needed “given the current market conditions and outlook.”
Daily world consumption, now about 76 million barrels, will exceed production by 220,000 barrels in the third quarter and 1.72 million in the fourth without more oil, the International Energy Agency projected.
“You’ll have worries about $2 a gallon retail gasoline again, and talk of sales from the Strategic Petroleum Reserve,” said William Brown, president of W.H. Brown & Co., an oil consultancy in New York. “The velocity of this thing is quite frightening.”
Energy Secretary Bill Richardson said Friday that the U.S. is encouraging the Organization of Petroleum Exporting Countries to “keep an open mind on production increases.”
Richardson spoke at the Asia-Pacific Economic Cooperation conference in San Diego after meeting with oil ministers from Indonesia, Mexico and other countries.
Crude oil reached levels Friday that Richardson has previously said were too high. In March, he held a series of meetings with oil ministers to try to persuade them to boost output.
“Richardson wanted oil off the headlines in an election year, but it’s back there,” analyst Brown said.
West Texas intermediate crude oil for June delivery settled at $29.62 a barrel, up 51 cents, on the New York Mercantile Exchange after briefly rallying to $30 for the first time since March 20. Prices are 69% higher than a year ago after rising 8.5% this week.
Still, crude has fallen from a nine-year high of $34.37 a barrel on March 8, after OPEC members signaled their intention to boost output in April. The cartel and non-OPEC members Mexico and Norway had cooperated in a yearlong effort to restrict production and boost prices from historic lows in the $10-to-$12 range.
Mexican Energy Secretary Luis Tellez, speaking with reporters at the San Diego conference, reiterated that OPEC has a mechanism in place to keep prices in a desired range between $22 and $28 a barrel for an average of seven crude oils. That so-called OPEC basket price gained 97 cents Thursday to $27.35 a barrel. The price tends to be about $2 a barrel below Nymex futures.
OPEC said it would raise or lower output by 500,000 barrels a day if the basket price moves out of the range for 20 days.
The average U.S. pump price for regular gasoline followed crude oil higher this year, reaching a record $1.529 a gallon the week ended March 20. Prices topped $2 a gallon at some filling stations. The average price rose to $1.455 a gallon last week, the first increase since the March high and up 31.5 cents a gallon from a year ago.
Higher oil and gasoline prices raised concern about an acceleration in commodity price inflation just days before next week’s Federal Reserve meeting on interest rates.
“We know [Fed Chairman Alan] Greenspan is very sensitive to gas prices, and so is Congress,” Brown said.
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Crude Climbs Again
Near-term crude oil futures in New York peaked above $34 a barrel earlier this year, then plunged after major producers pledged to raise output. But prices are surging again. Weekly closes per barrel:
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Friday: $29.62
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Source: Bloomberg News
