Oil, Gasoline Poised to Rise on New Fears

Less than a month ago, oil prices were tumbling toward $40 a barrel. Now, $50 a barrel appears more likely -- and gasoline prices could be headed higher as well.

Crude prices, which jumped $1.22 to $48.53 on Friday, are up 17% since late December, in large part because of growing anxiety about two key events coming Sunday: Iraq’s elections and a meeting of the Organization of the Petroleum Exporting Countries.

If the elections trigger renewed sabotage against oil facilities in Iraq or elsewhere in the Middle East, fears of disruptions at a time when global supplies already are stretched could be fanned.

“We’re one well-aimed rocket-propelled grenade away from being short of supply,” said David Pursell, a principal at Pickering Energy Partners, a consulting firm in Houston.

Any effort by OPEC to further curb its output also could push oil prices higher.

As for gasoline prices, they have flattened in recent weeks, after falling steadily for three months, to a national average of less than $2 a gallon. The average price for self-serve regular in California was $1.951 a gallon Friday, the Automobile Club of Southern California reported.

But “if crude quits going down, gasoline prices likely aren’t going down any more either,” Pursell said.

Adding to the pinch at the pump: Refiners are starting their annual maintenance programs and are converting from the production of winter-grade gasoline to summer grade, which typically prompts an upturn in prices this time of year.

“Motorists can expect prices to continue rising through February at least,” Auto Club spokeswoman Carol Thorp said.

OPEC members agreed last month to reduce production by 1 million barrels a day, or 3.6%, to 27 million starting Jan. 1 to maintain prices above $40 a barrel. The cut helped to do just that, traders said.

It’s unclear whether the cartel, which pumps more than one-third of the world’s oil, plans another production cut when it meets in Vienna this weekend.

But there is speculation that the group might again tighten its spigots ahead of the seasonal slowdown in oil demand during the second quarter.

Because oil is traded in dollars worldwide, the greenback’s weakness against other major currencies also is effectively forcing OPEC to try to keep oil above $40 a barrel, said Philip McPherson, research director at C.K. Cooper & Co., an Irvine investment firm that focuses on energy.

“They’re receiving the money in dollars, and when they transfer it to their currencies, they’re taking a 20% haircut,” he said.

OPEC often telegraphs its intentions to the world before its ministers even convene. But this time, “there does not seem to be a consensus building about just what they’re going to do,” said John Kingston, global oil director at Platts, an oil information service of McGraw-Hill Cos.

Meanwhile, Iraqi voters are set to go to the polls Sunday to elect a transitional national assembly that would begin building a new government, but insurgents have stepped up attacks against the country’s Shiite Muslim majority in hopes of delaying the vote.

On Friday, a car bomb exploded at a Shiite mosque in Baghdad, killing 14 people and injuring 40 others. A short time later, a suicide driver detonated a vehicle at a wedding party of a Shiite couple south of Baghdad, killing seven and wounding dozens of others.

Oil traders worry that political turmoil could pose a continuing threat to crude exports from Iraq, possessor of the world’s second-largest proven reserves. The nation’s oil infrastructure already has been a frequent target of terrorist bombings.

Oil prices surged throughout most of 2004 and hit $55.17 a barrel twice in October, setting all-time highs, unadjusted for inflation, on the New York Stock Exchange. Self-serve regular-grade gasoline in California hit a record $2.402 a gallon that month, according to government surveys.

The rally reflected continuing concern that world supplies of crude wouldn’t keep pace with the rising demand for oil, especially in the United States and China.

Because there is little spare capacity in the world, recurring threats to existing production fed that concern. In addition to attacks on Iraqi pipelines, the threats included terrorism in Saudi Arabia and elsewhere in the Middle East; political tensions in Venezuela and Russia; labor disputes in Nigeria; and weather-related problems such as Hurricane Ivan.

By December, those fears had abated enough that oil prices began sliding. By Dec. 27, prices had fallen to $41.32 a barrel on the Nymex.

But prices then began a steady rebound as OPEC production cuts took hold, political tensions rose in oil-rich countries such as Kuwait and, most recently, energy analysts raised their forecasts for energy demand this year.

OPEC, in its monthly report released Friday, revised upward its outlook for world oil demand this year. The cartel said it expected global demand in the current quarter to reach 83.7 million barrels a day in 2005, an increase of 400,000 barrels from a forecast it issued in December.

At the moment, world oil supplies are adequate, OPEC and many analysts say. And if the Iraqi elections go smoothly and the cartel doesn’t curb its production more, prices could again turn south.

“But if the elections are unsuccessful and things get crazy,” McPherson of C.K. Cooper said, “they could go the other way.”