Mideast, S. American woes fuel increase in oil prices
One group warned of a potential oil supply crisis.
WASHINGTON (AP) -- Winter's freeze, a possible war in Iraq and Venezuela's political instability are exposing the fragile nature of today's oil markets.
Heating-oil prices have soared and gasoline costs jumped in recent days to levels usually not seen until summer.
Energy analysts say retail markets are catching up to weeks of escalating crude-oil prices in a market worried about a U.S.-led invasion of Iraq and the lingering strife that has disrupted Venezuela's oil and gasoline exports.
The wholesale price of heating oil soared to $1.20 a gallon, a jump of 25 cents in just a week after it was learned that fuel stocks were uncomfortably low. Prices receded a bit Monday, but fuel-oil dealers across the Northeast wondered whether they would have adequate supplies if another lengthy deep freeze hits.
"The demand is extraordinary. It's absolutely horrific," said Jack Sullivan, chief executive of the New England Fuel Oil Institute, which represents more than 1,000 wholesale and retail fuel-oil companies.
Request for reserves
In a letter to Energy Secretary Spencer Abraham, his group warned of "a supply and pricing crisis" if more heating oil isn't made available. They asked that emergency stocks be released from a government heating-oil reserve. The Energy Department has not responded.
"The dramatic price rise we've seen in the last couple of weeks is primarily associated with fear about war in Iraq, the disruption of oil exports from Venezuela and extremely cold weather," said Kyle Cooper, an energy analyst for Smith Barney.
Consumers are getting hit at the gasoline pumps as well.
Nationally, retail gasoline prices increased for the ninth straight week to an average of $1.61 a gallon for regular grades, nearly 20 cents a gallon higher than in January and 50 cents a gallon higher than a year ago, according to the federal Energy Information Administration.
Crude oil moved above $35 a barrel last week, the highest it has been in two years, receding somewhat Monday. Government analysts forecast that prices probably will stay above $30 a barrel this year, even if a war is avoided in Iraq.
At 274 million barrels, crude inventories are "well below the low end of the normal range," and only a few million barrels above what is considered by industry as a minimum operating level.
With high crude prices and low stocks, some refiners scaled back operations and began seasonal maintenance a few weeks early, some analysts said, causing unusually large draws on stocks of heating oil and gasoline in the first week of February.
Heating-oil stocks in the Northeast are 35 percent below the 10-year average, according to the American Petroleum Institute. Gasoline stocks, while still at comfortable levels, fell 3.4 million barrels last week, the government said.
"Oil markets now are as tight as a fully stretched rubber band," said an Energy Department analysis. "Whether the rubber band breaks or not will largely depend on the pace of demand in coming weeks."
The Venezuela factor
With the disruption of Venezuelan production because of the country's political turmoil, some refiners have had to scramble for oil, analysts said. And although OPEC countries recently agreed to pump more oil to make up for Venezuela's shortfall, that oil takes a month or more to reach the United States.
At a time when refiners often begin to build gasoline stocks, they have been hampered by the sudden demand for heating oil and the thin supply of crude, analysts said.
That could translate into tight gasoline supplies and higher prices at the pump in the months ahead and into summer, some industry experts said. The Energy Department now predicts average prices nationally for gasoline this summer peaking at $1.65 a gallon, nearly a dime a gallon higher than forecast a few weeks ago.
The forecast assumes no fighting in Iraq.
If war erupts, prices are expected to soar temporarily, but could decline just as rapidly if the war goes well for the United States and Mideast oil fields are not severely damaged. Oil prices soared during the Gulf War in 1991, but then dropped sharply after the fighting stopped as the market became glutted with more oil than it could handle.
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