Operations

Gasoline Prices Head Back Up

LCT Staff
Posted on July 11, 2007

WASHINGTON, D.C. — After six straight weeks of declines, gasoline prices are once again rising the Energy Department said earlier this week. An international energy watchdog warned of a petroleum squeeze on the horizon.

The International Energy Agency (IEA), energy advisor to 26 industrialized countries, cautioned that a crude crunch was on the way because world demand was rising faster than production.

"Despite four years of high oil prices, this report sees increasing market tightness beyond 2010," the Paris-based agency said. Of particular concern, the group said, was the little extra oil-pumping capacity among members of the Organization of the Petroleum Exporting Countries and slow growth in non-OPEC producers such as Russia and Brazil.

The prediction helped lift oil prices in early trading on the New York Mercantile Exchange, but oil ultimately closed off 62 cents at $72.19 a barrel.

Analysts said the numbers were a symptom of complex problems. There is a worldwide shortage of skilled oil workers such as welders and engineers needed to keep production at high levels, said Antoine Halff, head of energy research at Fimat USA Inc. New oil projects, he said, such as deep ocean drilling efforts, and oil sands, present more-expensive technological problems than those in the past.

Other analysts said that the IEA might be understating the problem and that the future imbalance in supply and demand might be worse.

"If anything, this group has underestimated demand time and time again, and where are you going to get the extra oil? We have major challenges ahead of us," said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago.

But not everyone shared the gloomy IEA assessment, which stretched its predictions to 2012. That was too far out into the future to discount the possibility of production gains, some said. "They are underestimating some suppliers like Saudi Arabia, Kuwait, and maybe even Iraq. I just don't think it's as serious as they think," said John Kilduff, vice president of risk management at Man Financial Inc. in New York

Lately, refinery meltdowns have been concentrated in the central U.S. to such a degree that states such as Nebraska and Michigan had higher pump prices than California, according to the AAA's fuel gauge report. Nationwide, the average price of self-serve regular rose 2.2 cents to $2.98 a gallon, according to the Energy Department's weekly survey. Six weeks ago, gasoline peaked at $3.22 a gallon.

In California, the average price fell 2.1 cents to $3.14, the Energy Department said, and Midwest prices surged 9.1 cents to $3.04. Oil supplies in the U.S. remained strong, but that was largely due to refinery problems, which have reduced the immediate demand for crude.

Source: Los Angeles Times

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