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News You Can Use Oil Prices Back At 2003 Levels
By Peter Behr
A year ago, oil prices were climbing past $35 a barrel in the run-up to the Iraq war. They are back in that territory now, pushed up by cold weather, sparse commercial oil inventories, OPEC pricing decisions and the cautious strategies of oil companies. The price of the benchmark U.S. crude oil grade was $36 a barrel on the New York Mercantile Exchange as of noon Friday, 33 percent higher than in late September last year. Consumers are seeing the increase in prices for gasoline and heating oil and for natural gas, which tend to track oil markets. Pump prices for regular gasoline brands averaged $1.65 a gallon in the Washington metropolitan area, 3 cents higher than a month ago, according to a dealer survey. Prices had been below $1.50 a gallon last summer and again in December, before the current rise. Nationwide, gasoline prices were at record levels in January, before accounting for inflation. The Labor Department reported yesterday that consumer energy prices jumped 4.7 percent in January, driving the overall consumer price index up 0.5 percent. For the 12 months ended in January, consumer energy prices rose 7.8 percent. Many oil market analysts had expected oil prices to dip downward this spring. That doesn't look likely now, the government's Energy Information Administration said this week. "It is difficult to see how gasoline markets will not remain tight, at least through this upcoming summer driving season," the EIA's weekly report concluded. An underlying problem is a repeating circle of lean oil inventories and high prices, experts said. Commercial inventories have dropped well below normal levels for this time of year. Low inventories maintain a sense of scarcity in oil markets, helping to inflate prices and keeping traders and speculators in a buying mood. As long as oil prices remain high, energy companies tend to hold back from buying supplies to replenish inventories. "It's a perpetual loop," said Adam Sieminski, London-based analyst for Deutsche Bank. It is a bit of a vicious circle, agreed Simon Wardell, senior analyst with the World Markets Research Center, also in London. "No doubt the supply-and-demand balance is tight," he said. The cycle could be broken if there were a slowdown in the global economy that eased demand for petroleum products. But the International Energy Agency shifted its 2004 forecast the other way this month, predicting slightly more growth and less oil production than it had first expected.
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