Oil Prices Jump on War Jitters
Crude oil prices climbed to a 29-month high Thursday on continuing war fears compounded by tight petroleum supplies. Analysts said there was no relief in sight.
Prices at the pump have jumped in recent days, and market watchers are predicting the return of $2-a-gallon regular gasoline in California within weeks.
Motorists already are forking over at least that much for premium gasoline at many California service stations, which have some of the highest prices in the nation.
The AAA, which surveys prices daily, said regular gasoline in Los Angeles jumped 2.5 cents Thursday to $1.789 per gallon.
“We’re all holding our breath” to see where prices stop, said Jeffrey Spring, spokesman for the Automobile Club of Southern California.
A month ago, Los Angeles motorists were paying $1.608, and a year ago $1.276.
On Thursday, West Texas Intermediate oil for March delivery hit $36.36 per barrel on the New York Mercantile Exchange, up 59 cents, or 1.7%. The price was last this high on Sept. 20, 2000.
Crude oil prices have increased 35% since late November because of a prolonged oil-industry strike in Venezuela and worries that a military action against Iraq would disrupt petroleum supplies from the Middle East, which pumps a quarter of the world’s oil.
Markets were roiled Thursday after British Prime Minister Tony Blair said the United States and Britain may accelerate war plans because of the discovery of Iraqi missiles that appear to violate United Nations arms restrictions.
Michael Rothman, director of energy market research for Merrill Lynch & Co., said oil prices are reflecting “a very, very tight global oil balance.” He noted that the decrease in production in Venezuela isn’t being replaced by other sources.
In fact, global oil inventories are much tighter today than they were at the time of the 1991 Persian Gulf War, Rothman said. Inventories then were 125 million barrels above normal. Now they are 123 million barrels below normal.
Low inventories are causing refineries to produce less gasoline even though demand has not declined, which in turn is pushing prices higher, the Energy Information Administration said this week.
On Monday, the average price nationwide of regular gasoline was $1.607 a gallon, up 8 cents in a week, according to the EIA. That weekly increase tied the largest one recorded since the statistical arm of the Energy Department began its survey in August 1990.
Prices in California are even higher, averaging $1.752 a gallon statewide Monday, according to the EIA. The California average last flirted with $2 a gallon for regular gasoline in mid-2001, but never climbed higher than $1.954.
California drivers should brace themselves for more increases, said Bob van der Valk, manager of fuel supply and marketing for Cosby Oil Co., a wholesale gasoline distributor based in Santa Fe Springs.
Spot wholesale gasoline prices in Los Angeles are at $1.20, which doesn’t include delivery, taxes or any dealer profit, he said. That should translate to $1.85 at the pump within days.
“Gas will hit another high, and it will go past $2 a gallon by the end of February,” van der Valk predicted. “What drives this is Gas 101 -- what are the costs to get it from the oil well into your tank.”
Bloomberg News was used in compiling this report.
