As oil prices hover near a 14-year high, there is growing speculation that gasoline this summer could reach a national average of $2 per gallon, and even higher in some regions.
Dwindling stockpiles and increasing demand have put new pressure on both crude oil prices and the tab at the gas pump, analysts said.
Separate surveys this week had the national average of gasoline at $1.72 a gallon for regular grade and $1.77 a gallon for all grades. That is a 26-cent increase since the first of the year, according to the Lundberg Survey, which tracks prices at 8,000 stations.
Crude oil Friday on the New York Mercantile Exchange closed higher. Benchmark U.S. light crude futures settled 15 cents higher at $38.08 a barrel. It rose as high as $38.50 during New York trade, and traders said they expected a test of $40 a barrel before long.
London Brent ended up 13 cents at $33.26, after hitting a trading high of $33.38 a barrel.
Crude edges off highs
On Wednesday, oil prices closed at their highest level since October 16, 1990, shortly after Iraq invaded Kuwait.
Since then, prices are down slightly, partly due to reports that Pakistani operations in the country’s northern tribal regions had uncovered a high-ranking al-Qaida figure. Worries over terrorism have kept oil prices at a boil in recent weeks.
The high cost of crude is causing refiners to shy away from buying oil, analysts say. It also is leaving inventories of crude as well as petroleum products, including gasoline, at levels well below normal. That, in turn, is putting pressure on prices.
“We have very low crude inventory stocks, low gasoline inventory right now. ... We’re not seeing the buildup (of stocks) in the rate we normally see,” said Ed Silliere, vice president of risk management at Energy Merchant Corp.
“It’s a viewpoint that the market will have better supply down the road,” he said, adding that refiners at today’s crude prices do not want to take on more oil than they can use.
While crude inventories actually increased slightly last week, stocks of gasoline declined by 800,000 barrels to nearly 10 million barrels below the five-year average for this time of year, according to the Energy Information Administration.
The agency said refiners were producing gasoline at a rate of 8.6 million barrels a day, the most since the week just before Christmas. But demand also has risen.
Overall, motorists used an average of 8.9 million barrels of gasoline a day over the past month, 4.5 percent more than the same time a year ago, the agency said in its weekly report.
Gasoline stocks fell to 199.6 million barrels last week, declining for the first time since Nov. 28 to below 200 million barrels, the report said.
The agency, which uses a different survey method than Lundberg’s, put the price of regular-grade gasoline at $1.72 a gallon last week, a decline of 1.4 cents from the week before. Prices in some regions were much higher — an average of $2.10 a gallon in California, for example.
Analysts expect gasoline prices to go still higher as the summer driving season approaches, probably eclipsing $2 a gallon on a national average.
Silliere said that new environmental requirements involving toxicity and requirements in the Northeast for use of the ethanol additive will require changes in gasoline chemistry that will make it harder for European suppliers to ship gasoline into the United States to ease supply concerns.
He said he would not be surprised if prices went to $2.50 a gallon in some Northeast states, the West Coast and parts of the Midwest where price spikes have been common in past summers.
Distillate inventories, which include heating oil and diesel fuel, fell 900,000 barrels to 111.8 million barrels last week, according to the EIA. Distillate stocks have fallen eight times in the last nine weeks.
Crude inventories rose for the third straight week to 281.1 million barrels, an increase of 1.6 million barrels, but still 23.4 million barrels below the five-year average for this time of year.
White House resists tapping stockpile
On Thursday, the Bush administration resisted suggestions to tap the nation’s emergency oil stockpile, though it faces pressure from Congress to tackle rising gasoline prices that could be a major issue in this year’s presidential campaign.
Consumers are feeling the pinch at the gas pump now compared to three years ago when President Bush took office. With robust global oil demand and low U.S. gasoline inventories, analysts are calling for crude to break the $40 per barrel level for the first time since 1990.
Still, the administration has rejected calls from Congress to release oil from the U.S. Strategic Petroleum Reserve to put more supplies on the market and help lower prices.
“The SPR should be used for protection against oil supply disruptions, not to manipulate prices,” said Energy Department spokeswoman Jeanne Lopatto. “The trigger would be a severe supply disruption.”
The Energy Department runs the emergency stockpile, which was created by Congress in 1975 after the Arab oil embargo. It holds 648 million barrels at four sites in Louisiana and Texas, and the administration plans to fill it to its 700 million capacity by next year.
The United States imports about 11 million barrels of oil and refined petroleum products a day to meet 60 percent of its domestic demand. One in four of those imported barrels comes from the Middle East.
The U.S. government wields little power over global crude prices aside from the reserve, said Adam Sieminski, an oil analyst at Deutsche Bank in London.
Releasing barrels from the reserve makes sense, Sieminski said, because the government would likely require oil companies to refill it with interest.
“When the nationwide price is over $2 (for gasoline) maybe they’ll reconsider,” he said.
However, Lopatto said even if the average U.S. pump price tops $2 a gallon, the administration won’t tap the reserve unless there is a severe supply disruption.
She could not specify what such a disruption would be, saying only, “We’ll know it when we see it.”
House Energy and Commerce Committee Chairman Joe Barton (R. - Texas), said rising gasoline prices are not a national emergency.
“The president is doing exactly what the law says,” Barton told Reuters. “He doesn’t have the authority to say just open the spigots.”
Barton supports boosting the reserve’s capacity but said the Energy Department should temporarily suspend efforts to fill it in order to keep more oil in the market.
To counter rising gasoline prices, Lopatto said lawmakers should pass stalled energy legislation that would increase domestic fuel supplies.
House Speaker Dennis Hastert said high gasoline prices could hurt the U.S. economy, and urged the Senate to pass the energy bill cleared by the House last year.