Oil and Gasoline Prices Begin to Creep Up
Published: March 8, 2010
HOUSTON — Crude oil and gasoline prices are inching up again.
Optimism about the economy, new tensions in oil-producing Nigeria and reports that China intends to build up its strategic reserves lifted crude prices to around $82 on Monday, about a $10 increase in the last month.
Prices at the pump are rising, too, with the average national price for a gallon of gasoline jumping 5 cents in the last week, to just above $2.75.
“That’s a drag on the economy,” said Tom Kloza, chief oil analyst at the Oil Price Information Service, who estimated that consumers were paying just over $1 billion a day at the pump, about $250 million more than this time a year ago.
Mr. Kloza predicted that gasoline prices would top $3 a gallon between April and June as warm weather encouraged more driving, before dropping to as low as $2.50 after the summer driving season. “We’re in the fourth or fifth inning of the typical end-of-winter, early spring rise in gasoline prices,” he added.
The energy markets have been relatively stable since early October, with crude prices moving within a narrow range of $70 to $83. That followed years of erratic prices, with oil trading above $147 a barrel in July 2008 and falling below $33 only five months later.
Oil prices recovered steadily through most of last year, and peaked in early January at just under $84 a barrel. Some energy analysts say it is possible the price will break that level in the next several days, but there are few reasons to expect the price to rise to anywhere near the 2008 highs.
Global crude oil inventories have been slowly declining. But domestic inventories have been climbing and remain well above the five-year average for this time of year.
Gasoline supplies also remain ample, but prices at the pump have been rising along with oil prices. The average gallon of regular gas rose nearly a penny, to $2.75 on Monday, up from just over $2.70 a week ago and $2.66 a month ago, according to a report compiled by AAA, the motorists’ group.
Gasoline prices typically go up in the spring as refiners retool and switch to more expensive summer blends of gasoline. Demand and prices were particularly low this winter because of cold and stormy weather, and experts say they believe many drivers will be keen to take to the highway as spring blooms.
Still, high unemployment is keeping many commuters off the road, and putting a cap on discretionary driving.
In early morning trading on Monday, oil prices surged above $82 a barrel, but retreated later to settle at $81.87 a barrel, the highest closing price since Jan. 11.
“It remains to be seen whether we can hold $80, since we’ve failed to hold it five times in the past five months,” said Addison A. Armstrong, senior director for market research at Tradition Energy, an energy broker in Stamford, Conn. “Given the low level of demand, gasoline inventories certainly aren’t tightening.”
Several international factors, however, are pushing oil prices higher. A Nigerian rebel group recently called off a three-month cease-fire, and attacks on oil production operations have resumed. In recent weeks, oil production in Nigeria has fallen by 85,000 barrels a day, more than 4 percent of normal output.
Meanwhile, China is building storage plants to amass emergency reserves while prices remain relatively low, raising expectations that China may import as much as 15 percent more oil this year.
There is little expectation that OPEC, the producers’ cartel, will alter supplies at its meeting later this month. The oil minister for Ecuador, Germanico A. Pinto, who is the current president of the Organization of the Petroleum Exporting Countries, has said there is no need for members to cut shipments.
“If you look at the narrow supply and demand fundamentals, markets would seem to be a little bit ahead of themselves,” said Lawrence J. Goldstein, a director of the Energy Policy Research Foundation. “But if you look at the futures markets out six to 10 months, they are not pricing in exogenous events that are likely to occur, like a hurricane or a crisis involving Iran.”
For the oil industry, higher prices are naturally good news. Industry executives said they would encourage investment in Alaska and the Gulf of Mexico, and offset the impact of low natural gas prices.
“It certainly helps the cash flow,” said Rodney L. Waller, a senior vice president of Range Resources, an oil and gas company in Fort Worth. “It certainly helps you take the added cash, reinvest and grow your company.”