Gasoline, oil prices again rise in tandem

With crude near $50, they stop moving in opposite directions

September 29, 2004|By NEW YORK TIMES NEWS SERVICE

HOUSTON - As the price of crude oil flirts with $50 a barrel, gasoline prices are heading up again, ending an unusual period in which gasoline prices fell as oil prices rose.

Crude oil and gasoline prices began moving in opposite directions in June, a pleasant surprise for motorists in the peak summer holiday season.

Last week, however, gasoline prices jumped 5.1 cents a gallon to a national average of $1.917 a gallon, still below the record average of $2.06 a gallon in May but 33 cents higher than the price a year ago, the Department of Energy said.

If crude oil prices keep going up, as many oil industry officials expect, the prices of gasoline and heating oil are expected to climb, too.

The end to the divergence between crude oil and gasoline prices was inevitable, industry analysts say, because supply and demand was behind the abnormal movement this summer and is behind it now.

The divergence caused much speculation by conspiracy theorists about the possible political motivation of oil companies trying to influence the presidential election.

"No single entity can control the gasoline market. There are far too many competitive players for that to happen," said James Burkhard, director for world oil analysis at Cambridge Energy Resource Associates.

"The amount of spare refining capacity at a global level is precariously low right now," Burkhard said. "That could mean we'll see record gasoline prices before too long."

Adjusted for inflation, gasoline remains less expensive than it was during the oil shocks of the late 1970s and early 1980s. Gasoline reached a record national average of about $2.80 a gallon in 1981 when inflation is taken into account.

Demand fell

Still, the odd price movement during the summer struck many as suspicious.

Industry analysts explain, however, that consumer fears about higher fuel prices at the start of the summer explain in part why gasoline prices remained relatively low in recent months.

Gasoline demand dropped about 2 percent in August, and imports of refined gasoline already had been steadily increasing to about 1.1 million barrels a day over the summer from 600,000 to 700,000 barrels at the beginning of the year, according to John Telmy, chief economist at the American Petroleum Institute in Washington. Thus, gasoline prices slumped.

But now they are headed up. Because of the recent sharp spike in oil prices, the effect of ample supplies meeting slackened demand combined with gains in efficiency at the nation's refineries so that they can produce more gasoline are no longer enough to keep gasoline prices down.

Diesel up 10 cents

Crude oil prices are the most important determining factor in the cost of gasoline, accounting for about half of the retail price of gasoline.

Motorists might want to look at diesel prices to get an idea where gasoline costs are headed.

Diesel, used largely in the trucking industry, is normally cheaper than regular unleaded gasoline, but the price of diesel has climbed to records in recent weeks as refineries grappled with higher crude oil prices. Diesel rose 10 cents, to $2.01 a gallon, this week from a week earlier, or nearly 10 cents more expensive than a gallon of gasoline.

"There's essentially no escaping a rise in gasoline prices when crude is where it's at," said Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University in Dallas.

Baxter, who expects a 20-cent to 25-cent increase in the cost of gasoline in the next several weeks, said low inventories and scant excess oil production capacity around the world could send crude prices to $60 a barrel if a major supply disruption were to occur.

In an effort to head that off, Saudi Arabia, the world's top oil producer, pledged yesterday that it would raise production to 11 million barrels a day from 9.5 million barrels.

$50 oil

Still, there was concern over the impact of higher crude oil prices, as oil for November delivery closed at a record $49.90 yesterday on the New York Mercantile Exchange after rising to $50.47 earlier in the session. October gasoline futures climbed 1.16 cents on the NYMEX to close at $1.3579 a gallon.

Refineries in the United States have been on edge for much of the past month as they grappled with the effect of higher crude prices and interruptions in supplies because of hurricanes.

Similarly, homeowners are expected to pay more to heat their homes this winter, especially in the Northeast, where more than 80 percent of the nation's heating oil is consumed. Heating oil prices are likely to climb nearly 20 percent, to $1.60 a gallon from $1.36 a gallon, the Energy Department estimates.

Altogether, homeowners could spend as much as $500 more on heating oil this winter than last year if they burn about 1,000 gallons of the fuel.

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