- The Washington Times - Monday, May 24, 2004

U.S. retail prices for gasoline set a record last week, the government reported yesterday, while crude oil futures closed at a record high on anticipation of heavy demand outstripping a potential boost in production.

Regular-grade gasoline prices rose 4.7 cents to a nationwide average of $2.06 a gallon last week, the U.S. Energy Department said. Meanwhile, U.S. light crude futures closed at $41.72 a barrel yesterday, up $1.79 from Friday and slightly above the previous record of $41.55 set a week ago on the New York Mercantile Exchange.

Oil futures had dipped Friday after Saudi Arabia promised to boost its output by 10 percent to 9.1 million barrels per day starting June 1. But other nation’s in the Organization of Petroleum Exporting Countries this weekend apparently balked at increasing production, and traders decided the Saudi increase might come too late to meet summertime demand.

“I think the market right now is in a ‘prove it to me’ stage. They want to see the increase in barrels,” said Douglas MacIntyre, senior oil market analyst at the Energy Information Agency, an independent branch of the Energy Department.

Sustained higher oil and gasoline prices would affect the entire economy, including shipping costs, energy costs for manufacturers and eventually home heating oil costs.

“When you combine gasoline, natural gas prices that already are really high, and factor in crude oil prices … that is a lot of extra costs that U.S. consumers and companies are bearing this year versus last year,” Mr. MacIntyre said.

Crude oil prices are up 28.3 percent this year, and gasoline prices are up almost 58 cents a gallon from a year ago.

The high oil prices are driven by rising demand from fast-growing economies, especially in the United States and China, as well as speculation that markets may be disrupted by terrorist attacks on oil operations in Iraq and Saudi Arabia, said Ed Silliere, vice president for risk management at Energy Merchant LLC, an oil and gas marketing firm.

“The biggest reason [oil is] going up today is because speculators are pouring back into the market again. They are in the market not because they think there is a shortage of crude, but because they think there will be a shortage,” Mr. Silliere said.

Mr. Silliere said prices were likely to rise above $42 per barrel this year.

Gasoline prices are driven in part by high crude prices. But analysts said other factors also affect prices, including high energy costs to run U.S. refineries, capacity limits at refineries, and government requirements to produce gasoline that causes less pollution.

Saudi Arabia last week promised increased output in a bid to show major oil consuming nation’s that it, too, seeks to tame escalating oil prices. The world’s leading crude oil producer also proposed that OPEC raise quotas by 2 million to 2.5 million barrels a day, but no decision is expected until the cartel meets June 3 in Beirut.

OPEC, the 11-nation cartel of oil-producing nations, was responsible for 28 million barrels a day of crude oil production last year, about 40 percent of the world total, according to Energy Information Agency figures.

At a March 31 meeting, OPEC ministers said the market was “more than well-supplied” with crude oil and confirmed a production ceiling of 23.5 million barrels per day. The cartel said bottlenecks at U.S. refineries and speculation were responsible for price rises.

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