Price of oil nears record

Crude climbs past $55 a barrel, closes at $54.59

`It may spike to $60 or $70'

Gasoline could rise to $2.15 by spring

March 09, 2005|By Robert Manor and Jamie Francisco | Robert Manor and Jamie Francisco,CHICAGO TRIBUNE

The price of crude oil rose within a dollar of its record high yesterday, continuing a climb that analysts don't expect to end soon.

Oil prices have risen about 30 percent this year and are about 50 percent higher than they were a year ago. More expensive oil percolates through the economy, affecting everything from the price of paint to the cost of concrete. But it shows up most quickly and vividly in transportation.

Oil rose 70 cents to close at $54.59 a barrel on the New York Mercantile Exchange after reaching as high as $55.15. That was close to the record set Oct. 25, when it closed at $55.67 amid high global demand, particularly from China.

The Energy Information Administration, the statistics arm of the Energy Department, said yesterday that China's oil demand will grow this year by 33 percent more than previously forecast.

"I don't believe this is a speculative bubble," said Douglas Porter, deputy chief economist with BMO Nesbitt Burns. "It may spike to $60 or $70" a barrel.

The average price for a gallon of unleaded regular gasoline in metropolitan Baltimore was $1.94 yesterday, according to AAA Mid-Atlantic, based in Towson. That's up 6 cents since Friday and up 26 cents since a year ago. The highest average price recorded in Baltimore was $2.05 on June 1, 2004.

In the Central Atlantic Region, which includes Maryland, the average price per gallon was $1.96, up 5.3 cents from last week and 21.9 cents from a year ago.

The most expensive gasoline is in California, where a gallon of unleaded regular averages $2.23, up about 12 cents from a year ago.

Consumers in the Baltimore area can expect prices to climb steadily through the summer and are likely to pay more than last year's record prices, said Chuck Jackson, AAA's public and government relations manager.

"Sustained domestic growth in gasoline demand, both seasonal and year-over-year, is expected to increase average monthly prices to about $2.15 per gallon by spring" across the nation, the EIA predicted.

Economists say the huge oil finds of the past 150 years are being depleted while demand for petroleum continues to rise. Oil-exporting countries no longer have a margin of reserve, and most are pumping at capacity.

Oil prices leaped above $55 a barrel in the fall after decades at less than $40. Petroleum analysts blamed the Russian government's takeover of Yukos, a huge oil company, along with fears that critical output from Venezuela and Nigeria might be cut off by political unrest.

Saudi Arabia promised more production, and oil prices declined until the beginning of the year, when they reversed course.

The U.S. Energy Department and the Organization of Petroleum Exporting Countries say stronger demand from China, India and the United States is partly responsible for the increase.

Analysts are awaiting OPEC's next meeting, scheduled for March 16 in Iran. In the past, OPEC's 40 percent share of world oil output meant it could dictate long-term trends in prices by setting quotas on production. But that might have changed.

"The only thing that will get us to move decisively lower is a global recession that would reduce demand," Citigroup Inc. industry analyst Kyle Cooper told Bloomberg News. "OPEC is pretty powerless to lower prices."

Lehman Brothers energy analysts Jeffrey Robertson and Thomas Driscoll told investors yesterday that they were raising their estimated average price of oil through next year by $8 a barrel.

"Rising commodity prices, driven in large part by demand growth, have resulted in a shift upward," they said.

Although higher oil prices can affect all levels of the economy, it's at the gasoline pump that consumers feel the most direct impact.

The increased cost of petroleum also can lead to higher prices for manufactured goods. For example, it raises the price of synthetic fiber, leading to higher costs for clothing and other textiles.

"We will get a bolt of inflation" from higher oil costs, said Peter Morici, an economist and professor at the University of Maryland school of business, who estimates that rising oil prices shaved $60 billion from the nation's gross domestic product last year.

"This is significant stuff," he said. "When Americans have an impact like this, they have to accept a somewhat lower standard of living."

Some sectors of the economy benefit when oil prices are high.

Yesterday, Standard & Poor's, the credit-rating agency, spoke favorably of the outlook for Halliburton Co., the Houston oil industry services company formerly headed by Vice President Dick Cheney.

The oil services industry picks up when crude prices are high and companies are eager to explore for potential petroleum fields.

"The stable outlook reflects Standard & Poor's expectation that solid financial and operating performance in oil field services will improve," S&P said.

Inflation tends to exaggerate rises in the price of petroleum and gasoline. The American Petroleum Institute said this week that gasoline is still much cheaper than it was at its peak during the oil crisis of 24 years ago.

"Gasoline prices are 28 percent lower than the 1981 high of $2.85 per gallon" in terms of current dollars, the institute said.

The Chicago Tribune is a Tribune Publishing newspaper. Tribune staff writer Kathy Bergen and Sun staff writer Blanca Torres contributed to this article.

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