Oil and Gasoline Prices Begin to Creep Up

Mar 8, 2010 — New York Times

HOUSTON — Crude oil and gasoline prices are inching up again.

A combination of reasonably upbeat economic data, 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 over the last month.

Prices at the pump have followed suit, with the average national price for a gallon of gasoline rising 5 cents in the last week.

“That’s a drag on the economy,” said Tom Kloza, chief oil analyst at the Oil Price Information Service, who estimated that consumers are 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 encourages 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 will rise to anywhere near the 2008 highs.

Global crude inventories, much of which are floating on tankers around the world, 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 the AAA daily fuel gauge report.

Gasoline prices typically go up in the spring as refiners retool and switch to more expensive blends of gasoline. Demand and prices were particularly low this winter because of cold and stormy weather, and experts believe many drivers will be keen to take to the highway as spring blooms.

Still, high unemployment is still keeping many commuters off the road, and putting a cap on discretionary driving.

Oil prices surged in early morning trading Monday above $82 a barrel, but quickly retreated to just over $81 by midday.

“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 of 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 ceasefire, and attacks on oil-production operations have resumed. In recent weeks, oil production in Nigeria have fallen by 85,000 barrels a day, more than 4 percent of normal output. Meanwhile, China is constructing storage plants to build emergency reserves while prices remain relatively low, raising expectations that China may be importing as much as 15 percent more oil this year.

There is little expectation that OPEC will alter supplies at its meeting later this month. The oil minister from 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 Larry Goldstein, a director of the Energy Policy Research Foundation. “But if you look at the futures markets out 6 to 10 months, they are not pricing in exogenous events that are likely to occur like a hurricane or a crisis involving Iran.”

Mr. Goldstein added, “The further out you look the bias is toward upside risk.”

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.”