Oil And Gas Prices Hit New Highs

(CBS/AP)  Gasoline prices set a new high Thursday, reported the American Automobile Association, and there are signs they will go higher in the near future.

AAA said the average price of a gallon of regular unleaded gasoline rose to $2.055 per gallon, a tenth of a cent above the previous high.

The average price in California was $2.31, reports Holly Quan of KCBS Radio. That's 8 cents more than a week ago and a 22-cent increase in a month. Prices in most other states passed the $2-a-gallon mark.

Crude oil futures soared above $57 a barrel Thursday after an OPEC pledge to increase output failed to assure traders worried about tight supply.

Nor did a vote by a sharply divided U.S. Senate on Wednesday to open the Alaska wildlife refuge to oil drilling, delivering a major energy policy win for President Bush.

"I'd like to tell you that I could find a fundamental reason for the
market being up here but I can't," said independent oil trader Daniel Dicker. "I'd like to tell you I could find a technical reason for the market being up here but I can't."

Members of the Organization of Petroleum Exporting Countries met in Iran on Wednesday and agreed to raise the group's output quota by 500,000 barrels a day, or 1.9 percent.

The market was unimpressed with that decision, because members of the oil cartel who are supposedly bound by its production quota are already exceeding the previous ceiling by about 700,000 barrels a day — meaning no extra supply will actually be added.

OPEC President Sheik Ahmed Fahd Al Ahmed Al Sabah also said the additional barrels may not come until May, since members are already supplying more than planned.

"This is not about lowering prices. It's about stopping them skyrocketing," Yasser Elguindi of New York-based Medley Global Advisers said on the International Oil Daily Web site.

Bruce Evers, an analyst with Investec Securities, said traders are convinced the newly announced production "won't be enough and it's going to leave the supply side of the equation very stretched."

With capacity so tight and demand expected to increase later in the year when winter hits, an unforeseen supply disruption — like a bad hurricane season in the Gulf of Mexico or political instability in Nigeria or Venezuela — could send prices even higher, he warned.

"Sixty (dollars a barrel) is a question of when, not if," said Evers.

Simon Wardell, an analyst with the Global Insight consulting group, said "this is definitely a structural price change" driven by demand outpacing supply.

Wardell said OPEC was producing almost all the oil it can pump. That means the upward price trend is unlikely to reverse unless demand slackens significantly, "which would mean a fairly sharp drop in economic growth," he warned.

Traders are worried that demand could soon outstrip supply. China, the world's second-biggest oil consumer after the United States, is already guzzling more than a third of the world's crude supplies. Chinese fuel use will rise 7.9 percent this year, or 500,000 barrels a day, to 6.88 million barrels a day, according to the Paris-based International Energy Agency.

The agency said last week it expects petroleum needs this year to increase 2.2 per cent, by 1.81 million barrels a day, to a new daily total of 84.3 million barrels.

Crude futures shot up more than $1 a barrel after the latest petroleum supply report from the U.S. government showed a sharp fall in domestic supplies of gasoline and heating oil last week.

In its latest report for the week ending March 11, the Energy Information Administration said gasoline stocks fell by almost three times more than expected, by 2.9 million barrels, to 221.4 million barrels, compared with consensus forecasts for a build of 800,000 barrels.