Oil prices soar as supplies dwindle
By Mark Shenk
Bloomberg News Service
Crude oil futures closed above $38 a barrel yesterday for the first time since the 1990-91 Persian Gulf War, after the Energy Department reported a decline in nationwide gasoline inventories.
The 800,000 barrel drop last week left gasoline supplies at 199.6 million barrels, the lowest since November, while demand of 9 million barrels a day was the highest so far this year.
Supplies fell as refineries unexpectedly cut their processing rates at a time when they usually build motor-fuel reserves for the peak-use summer months.
"Demand just keeps growing in spite of high prices," said Phil Flynn, senior energy trader for Alaron Trading Corp. in Chicago. "This is setting us up for a very bad summer driving season."
Crude oil for April delivery rose 70 cents, or 1.9 percent, to settle at $38.18 a barrel on the New York Mercantile Exchange, the highest settlement price since Oct. 16, 1990, when Iraqi troops were occupying Kuwait.
Oil rose to $38.35 during yesterday's session, the highest intraday price since Feb. 27. Prices were 9.3 percent higher than a year earlier, when American and British troops were preparing to invade Iraq.
Gasoline for April delivery rose 3.13 cents, or 2.8 percent, to settle at $1.1577 in New York, the highest close since May 23, 2001. Prices rose as high as $1.163.
Demand for gasoline averaged more than 8.9 million barrels a day during the past four weeks, 0.9 percent higher than last week and 4.5 percent higher than the same period in 2003.
Motorists are already paying record prices with peak fuel demand more than two months away. The average retail price for self-serve gasoline rose about 1 cent the past two weeks to $1.74 a gallon as of Friday, said Trilby Lundberg, president of Camarillo, Calif.-based Lundberg Survey Inc., citing a survey of about 8,000 gasoline stations.
Hawai'i's average price for unleaded gas stood at $2.102 a gallon yesterday compared to the recorded peak of $2.132 reached Oct. 23, according to the AAA auto club.
Gasoline imports fell 8.5 percent to 934,000 barrels a day, according to the Energy Department report. The United States may find it difficult to import enough gasoline to make up for domestic shortages when demand increases, said George Gaspar, an energy analyst with Robert W. Baird & Co. in Milwaukee.
"There will be greater competition for the European gasoline so we'll have to pay more for it," Gaspar said. "The formulation changes in New England and the East Coast will obviously make it a bigger challenge to get supplies."
New York, California and at least 15 other states have banned the petrochemical additive known as MTBE in cleaner burning reformulated gasoline and shifted to an ethanol blend. Rules requiring lower sulfur content in gasoline also took effect this year in the United States.
"Oil is being held up by gasoline," Gaspar said. "If the complications in the gasoline market are solved you will see oil tumble."
Demand may grow faster than inventories because of robust economic growth in the United States, China and Japan, the three biggest oil consumers, analysts said.
The nation's refiners slowed operations by 1.5 percentage points to 87.6 percent of capacity last week, which was also 1.2 percent below year-earlier levels, the department said. Analysts had expected processing rates to rise to 89.6 percent. Refiners usually boost operating levels after performing maintenance at this time of year to meet summer gasoline demand.
"The dip in maintenance is a surprise that warrants concern," said Tim Evans, senior energy analyst at IFR Markets in New York. "They should be boosting product output now."
Expectations that the Organization of Petroleum Exporting Countries will proceed with a production cut in April have also helped push prices to recent highs, traders said.
Advertiser staff contributed the Hawai'i information in this report.
