Oil Rolls Past $70 a Barrel
Oil prices jumped to a new high above $70 a barrel Monday and ignited fresh fears at the gas pump, where drivers seem to be paying more every day.
At one Chevron station in downtown Los Angeles, motorists had to fork over $3.35 a gallon on Monday. And that’s for self-serve regular.
Such high prices so early in the year -- before the demand from summer travel kicks in -- have some energy experts predicting that records could continue to fall in the coming weeks. And economists warn that supercharged energy prices could rekindle inflation across the economy and restrain free-spending consumers.
“If it stays at this level for about six months or so, you will see the prices of other products and services increase,” said Chapman University economist Esmael Adibi.
Expensive energy already is being felt, he noted, with major airlines linking higher fares to jet fuel costs. Another sign: Eastman Kodak Co. said Monday that it planned to charge 17% more for film to cover the rising cost of the silver and oil used to produce it.
On the New York futures market Monday, traders sent the May contract for benchmark light crude up $1.08 to close at $70.40 a barrel, beating the previous record of $69.81 a barrel reached Aug. 30 as Hurricane Katrina was walloping the Gulf Coast.
Stocks slipped on rising gold and energy prices, with the Dow Jones industrial average losing 63.87 points to end at 11,073.78.
Energy markets are being roiled by the West’s nuclear stare-down with Iran and a possible oil production shutdown in Nigeria. The price move reflected the market’s nervousness because global supplies barely cover demand, and major oil-producing countries have little extra capacity to make up for output lost to unexpected events.
“Every time we get some good news, we get bad news. Right now, a very good target for crude oil is $75,” said Phil Flynn, senior market analyst for Alaron Trading Corp. in Chicago. A major disruption in a production hotspot could cause oil prices to soar to $90 a barrel or more, analysts said.
“If something drastic happens, the worst would be $100,” said Steve Bellino, senior vice president for energy risk management at Fimat USA Inc., a New York commodities trading firm.
Leaping oil prices and regional supply factors continue to be felt at the gas pump, with the average U.S. price for a gallon of self-serve regular jumping a dime in the last week to $2.783, the Energy Department reported Monday.
Californians were paying the most at $2.896, up 8.5 cents, according to the agency’s weekly poll of service stations. And many dealers, including the Chevron downtown, passed $3 a gallon weeks ago.
Erick Figueroa, 23, didn’t quite believe what he was seeing while getting gas for his 2006 Toyota Scion at the station at Alameda Street and Cesar E. Chavez Avenue.
“How much is it?” he asked, scanning the digital display before yelping, "$3.35?”
His $7 investment brought him a modest two gallons.
“I just need to get back to Whittier,” said Figueroa, who was downtown picking up documents for his employer. “The only time I really, really pay attention is when I’m low on money.”
Alfred M. Diaz, a retired Army colonel from San Dimas, said he felt the price crunch every time his daughter called for help locating cheap gas stations during her hunt for a teaching job. Diaz is picking up her fuel tab.
“I hope she finds something soon,” said Diaz, who is also concerned that sustained high fuel prices will raise costs for all sorts of things he has to buy. “She’s driving all over looking for a job, and our retirement income is not going up at the same rate as these fuel prices.”
Gasoline prices are still short of the U.S. record of $3.069 a gallon, which was set on Labor Day. And adjusted for inflation, oil is cheaper than it was after the 1979 Iranian revolution pushed the price of a barrel to what would be nearly $95 today.
Rising prices affected Easter celebrations for about 48% of the 11,000 people who responded to a question at gasbuddy.com, a system of websites that tracks gasoline prices in several cities, co-founder Jason Toews said.
“One man in Lansing, Mich., said that there was no driving over to visit family and friends this year because of fuel costs,” Toews said. “A family in Albany, N.Y., said they all piled into one vehicle for Easter this year rather than the usual of everyone driving their own cars.”
Autobytel.com, the online car-buying service, said higher gasoline prices had stimulated growing interest in hybrid vehicles, according to a recent poll of more than 400 users of the service.
Brian Chee, managing editor of autobytel.com, said that 65% of participants said they were considering buying a hybrid. A year ago, 30% to 40% gave that response.
“It’s a real pocketbook issue,” Chee said. “How much am I going to save at the pump?”
The high cost of oil, which accounts for about half the price of gasoline, is only one reason for the pain at the pump. Some large hurricane-damaged Gulf Coast refineries still haven’t returned to full production, and others are in the midst of lengthy annual tuneups.
Also, many refiners, particularly in Texas and on the East Coast, are making an unexpectedly sudden switch to ethanol as an additive for less-polluting fuel and dropping the additive MTBE, or methyl tertiary butyl ether, which has been linked to water pollution.
The Energy Department has warned about regional shortages of ethanol and fuel as the changeover occurs.
After pumping $3.03-a-gallon gas into his Hyundai Accent on Monday, Los Angeles chef Ken Perry figures he’ll be driven off the road if fuel gets more expensive.
“As soon as I can figure out how to use the bus system....” he said. “It’s looking like that will be an actual possibility.”
But other drivers, such as David Bagin of Burbank, don’t consider public transportation a realistic alternative, especially in Los Angeles.
“I do think they’re gouging us, but what are you going to do about it?” said Bagin, a retired employee of the city of Los Angeles who collects cars. At $2.89 a gallon for regular, it cost $40.60 to fill his 2001 Mercury Grand Marquis at a Shell station in Hollywood.
“The bottom line,” he said, “is you’ve got to get around.”