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Record prices set for crude, gasoline

 
Paladin
08/10/2005 09:17 PM
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Record prices set for crude, gasoline
Cost of oil not slowing drivers
Record prices set for crude, gasoline

By Robert Manor, Tribune staff reporter. The Associated Press contributed to this report
Published August 9, 2005


Oil and retail gasoline prices hit record highs again Monday, propelled by threats to the American Embassy in Saudi Arabia and problems at U.S. refineries.

But even as prices continue to rise, industry observers said they are seeing no change in consumer behavior.

People continue to drive to work despite higher prices at the pump, and the stock market has largely shaken off the effect of higher energy costs.

"It´s awfully hard ... to switch commuting modes in great numbers," said Donald W. Jones, senior economist with Chicago-based RCF Economics and Financial Consulting Inc., who said his study of census data shows that so far there is no big surge of people getting out of their vehicles to ride public transit.

Jones said consumer behavior will change if the public perceives that high gas prices are permanent and not a temporary phenomenon, but so far that has not happened.

Oil traders turn on a dime, however, and Monday they bid up the price of oil after it was disclosed Sunday that the U.S. Embassy in Saudi Arabia had closed for at least two days because of security threats.

Crude oil rose to an intraday record of $63.99 a barrel on the New York Mercantile Exchange before closing up $1.63, at $63.94. That broke the previous record close of $62.31, set Friday.

And an Energy Department report released Monday showed the average nationwide price for a gallon of regular unleaded gasoline increased 7.7 cents from a week ago, to $2.368, topping the previous record, set last month, by 4 cents. The average price in Chicago rose to a record $2.461 a gallon.

The oil market has been worried about the lack of excess capacity for a while, and Saudi Arabia is the only nation with the capability to pump more crude. Even if it did increase output, it couldn´t add enough to push down prices.

Howard Simons, a financial strategist with Chicago-based Bianco Research, said the embassy threat "doesn´t put on or take off a single barrel of oil on the market, but it reminds people of the fragility of our supply line."

Investors have taken the higher prices of oil and gasoline in stride. For example, the Dow Jones industrial average dropped 21 points Monday, a number so small as to indicate nothing about market sentiment. And even that decline was partly driven by concerns about higher interest rates.

"We have had these higher oil prices, and what financial damage has been done by them?" Simons asked. "The answer is none."

The expectation that demand will remain steady and supply will not grow has been reinforced by problems at refineries across the nation. Because the U.S. has not built a new refinery in decades, it has little spare capacity to make gasoline.

Carl Adams, president of Illinois Ayers Oil Co., told Bloomberg News that traders are reacting in part to the news of unplanned outages at six refineries that have curtailed gas output.

"That really fuels the upward trend" of gasoline, Adams said. "It just pushes those prices higher."

For example, oil refiner Valero said equipment at its Ardmore, Okla., refinery needs repairs that will take at least two weeks. That will cut 17,000 barrels a day of gasoline production. And a Sunoco refinery in Philadelphia suffered a fire over the weekend, adding to production concerns.

But gasoline prices would have to march much higher to reach levels seen a generation ago. Adjusting for inflation, retail gasoline prices peaked above $3 a gallon in 1981.

Even that might not be enough to force commuters from their cars.

"A lot of people don´t have that choice," said Michael Stavy, a Chicago energy consultant who noted that people who live in the suburbs or rural areas often have no choice but to drive long distance. "They can try to change their behavior, but not unless there are alternative ways to travel."

The financial house of Goldman Sachs earlier this year estimated how high gas prices would have to go before the American public would change its driving habits.

"Is $3.50-$4.50 per gallon U.S. retail gasoline prices needed to curb demand?" the company asked. According to Goldman´s analysis, the answer is yes.

Oil and gasoline prices are notoriously volatile over time, with bust following boom as new supplies come online. But some observers now argue that the world has exploited all the easily found crude, and a surge in production is not possible.

Analyst Marshall Steeves at New York-based brokerage Refco Group said oil and gasoline prices were likely to keep rising until there were signs of a significant drop-off in demand or a sharp slowdown in economic growth.

"We´re clearly not there yet," he said.

Worldwide consumption is expected to average more than 84 million barrels a day in 2005, leaving at most 1.5 million barrels a day of spare production capacity that could be called upon in an emergency to offset a prolonged supply disruption. That is considered an extremely thin safety margin.

The market has also kept a close eye on tropical storms in the Gulf of Mexico, fearing a repeat of last year, when Hurricane Ivan damaged oil facilities and caused output in the region to drop for several months. Hurricanes earlier this year also impaired production in the gulf, though not as much as Ivan.

Oil broker Tom Bentz of BNP Paribas Commodity Futures said there was no single cause for Monday´s rally.

"We´ve just got a continuation of the uptrend here," he said, "and there´s no sign that it will be stopping anytime soon."



[link to www.chicagotribune.com]
Paladin
12/08/2005 10:08 AM
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Re: Record prices set for crude, gasoline
This is my point...

what will it take for you to change your behavior in the gas you use....????
Anonymous Coward
12/08/2005 10:08 AM
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Re: Record prices set for crude, gasoline
When I don´t need money to live. Kind of a catch 22.
Anonymous Coward
12/08/2005 10:08 AM
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Re: Record prices set for crude, gasoline
What the hell are we supposed to do. You can trade your SUV maybe for a compact or something more fuel efficient but thanks to big oil interests we are stuck sucking on the teet of oil to fuel everything we do.
Paladin
12/08/2005 10:08 AM
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Re: Record prices set for crude, gasoline
ok...

what will it take for you to take the bus...or train
Anonymous Coward
12/08/2005 10:08 AM
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Re: Record prices set for crude, gasoline
I have never rode a bus that was on time. I wish I had zoneing for a horse.
von Doom
12/08/2005 10:08 AM
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Re: Record prices set for crude, gasoline
This is why the power elite have been stockpiling petroleum jelly all these years. And here I thought it was just for the Grove.
Anonymous Coward
12/08/2005 10:08 AM
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Re: Record prices set for crude, gasoline
If you don´t live in the city there is no such thing as public transportation in the US
Paladin
12/08/2005 10:08 AM
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Re: Record prices set for crude, gasoline
true.....75% of the people live in the city I belive...


I have rode the city bus..........what a blow to my freedom...a car....it can be done......what will the cost of gas be before you change????

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