- The Washington Times - Monday, June 20, 2005

Crude oil climbed above $59 a barrel in New York trading as strong industrial and consumer demand drove prices to a record.

Crude oil futures closed at $59.37 a barrel yesterday on the New York Mercantile Exchange, breaking by 90 cents the record set Friday.

“That’s a very bad sign for consumers,” said John Townsend, spokesman for AAA Mid-Atlantic. “Crude oil prices are stubbornly high, and that means U.S. drivers will continue to pay over $2 a gallon [for gasoline] this summer.”

The national average gasoline price hit $2.16 a gallon yesterday, the U.S. Energy Information Agency said. That is up 3 cents from a week ago and 22 cents from a year ago, but still below a record high set in April.

Prices in and around Washington are higher than the national average, with the price per gallon about $2.24 yesterday inside the District, AAA said.

Crude oil accounts for about half the cost of a gallon of gas and generally has an impact on prices at the pump in a matter of weeks.

“As long as [crude oil] hovers around $60, we’ll never come out of the woods,” Mr. Townsend said.

The record price came even as the Organization of Petroleum Exporting Countries talked about raising its output for the second time in two weeks.

OPEC last week said it would raise its production ceiling by 500,000 barrels to 28 million barrels starting July 1. Yesterday OPEC President Sheik Ahmad Fahd al-Ahmad al-Sabah said if futures prices remain high all week, he would ask colleagues to release an additional half-million barrels, the Associated Press reported.

Markets largely discounted the pledge.

“An addition of 500,000 barrels is not going to make that much of a difference,” said Tom Bentz, senior energy analyst at BNP Paribas Commodity Futures. “Overall the feeling is that … it’s going to be very difficult for OPEC to keep up with the demand.”

Crude oil prices have surged more than $10 a barrel in the past month — and almost $22 in the last year — because of strong demand coupled with concern that political volatility in oil-producing states could limit supplies.

“The market is in an uptrend that has been in place for a year and a half. It’s the same issues — world demand is strong, supply is limited, and we cannot afford to have disruptions … in any oil-producing countries,” Mr. Bentz said.

Political volatility last year in Venezuela, Nigeria and the Middle East spurred price rises last year. Oil workers in Norway, the world’s No. 3 oil exporter, this week are threatening a strike.

Oil futures on the New York Mercantile Exchange are below the high of more than $90 a barrel, when adjusted for inflation, set in 1980.

Higher crude oil prices echo through the economy by raising gasoline, diesel, jet fuel, home heating oil, energy and other costs.

Some costs are obvious, such as a $1 “emergency fuel surcharge” added to D.C. taxi fares, a $90 surcharge tacked on to round-trip trans-Atlantic flights on Delta Air Lines or a 2.75 percent fee tacked onto UPS ground freight.

Other times, the impact of rising crude oil prices is harder to discern. Consumers may not, for example, notice rising food prices, but farmers often face falling incomes when fuel prices spike and they cannot pass on that cost.

The U.S. economy as a whole has been able to adjust to fluctuating prices so far. In the first quarter of 2005, the economy grew at a 3.5 percent annual rate, the Commerce Department said.

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