October 22, 2008

OPEC Ponders Choices as Oil Prices Plummet

By JAD MOUAWAD

At the beginning of the year, OPEC producers felt confident that strong economic growth and tight supplies would keep oil prices high. When oil crossed the $100-a-barrel threshold in February, the cartel’s president blamed speculators and said there was not much OPEC could do.

But now, panic is gripping producers as prices drop. Oil is down by half since July, and the speed of the decline has stunned oil-rich governments that have become dependent on high prices.

As the global economy continues to weaken, the Organization of the Petroleum Exporting Countries faces its toughest test in years.

The problem for the oil exporters, who meet for an emergency session in Vienna on Friday, is to find a way to stop the price drop at a time when oil consumption is falling markedly in industrialized countries. Even the Chinese economy, long the biggest engine of growth for oil demand, seems to be cooling.

Most analysts expect the group to announce a production cut of at least a million barrels a day, which would be more than 1 percent of the world oil supply. Chakib Khelil, OPEC’s president, said last week that an output cut was “obvious” and suggested the group might meet often in coming months for further adjustments.

History suggests that OPEC will face a tough time propping up prices as oil consumption slows and the world teeters on the edge of a global recession, analysts said. Some experts warn that if the cartel took too much oil off the market, it could push prices up so much as to worsen the global economic crisis.

“OPEC’s problem is they don’t know how much demand is falling,” said Jan Stuart, an energy economist at UBS. “So the risk they run is either they don’t do enough, or they do too much. That’s a tough choice.”

Nobuo Tanaka, the executive director of the International Energy Agency, said a cut in production could harm consumers and delay an economic recovery. “The slowdown may be prolonged,” Mr. Tanaka told reporters on Monday in Paris, where the energy agency, which advises industrialized countries, is based.

The biggest question is what price the cartel is prepared to defend. In 2000, producers adopted a price band of $22 to $28 a barrel, and adjusted production levels accordingly. The mechanism was imperfect, and many producers felt it constrained them, but it basically worked to ensure stability in oil markets.

But defending a price requires spare capacity, so that production can be raised if prices get too high, as well as discipline on the part of OPEC members, so that production can be lowered when prices fall. OPEC abandoned its price band when its spare capacity virtually disappeared in 2005 amid rapidly rising global oil demand.

Now, with consumption growth slowing sharply and new oil projects coming online, some spare capacity has become available.

Sept. 12 (Bloomberg) — Crude oil was little changed after falling below $100 a barrel in New York today for the first time since April on signs that a slowing global economy will curtail energy demand and as Hurricane Ike takes aim at Texas refineries.

Crude oil and gasoline rose as Hurricane Ike headed toward the Texas coast, home to 23 percent of U.S. refining capacity, shutting almost all Gulf of Mexico oil production as it passes.About 18 percent of U.S. oil processing capacity has been shut before Ike makes landfall today. More than a quarter of U.S. crude production is based in the Gulf Coast region. Evacuations have halted 97 percent of Gulf oil output, the Minerals Management Service said yesterday.

“The big concern is about the products because the refineries aren’t running,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “It remains to be seen how much damage will occur, but nobody wants to take chances.”

Futures traded as low as $99.99 a barrel and have erased almost a third of their value since reaching a record $147.27 on July 11. Traders have shrugged off forecasts that the storm will hit the Texas coast later today.

Average price of self-serve regular close to $4 a gallon!

May 18, 2008: 6:00 PM EDT

(CNN) — The average price of gasoline has jumped another 17 cents a gallon in the past two weeks to a record-breaking $3.79 a gallon for self-serve regular, according to a national survey released Sunday.

This climb in prices makes it a “high possibility” that many cities will see $4 a gallon regular gas soon, said survey publisher Trilby Lundberg.

“We are within 21 cents of $4 a gallon,” said Lundberg. “There seems to be very good chance that we will reach it.”

Four dollars a gallon of regular unleaded happened in two metro areas in the latest survey, according to the biweekly Lundberg Survey.

These areas had the highest average gas prices in the survey. They were Chicago, $4.07 and Long Island, New York, $4.01.

“That is the first time in history we have ever had two metro areas over $4 a gallon,” said Lundberg.

The survey looks at thousands of gas stations across the country. The main reason for the price hike was record highs in crude oil prices, Lundberg said.

Learn how you can save at the pump and help the environment while increasing the MPG.

NEW YORK (CNNMoney.com) — Retail gas prices hit record highs for the ninth day in a row, auto group AAA’s Web site showed Friday.

The nationwide average for a gallon of regular unleaded hit $3.787, up from the previous high of $3.776.

Gas prices have now risen for 10 straight days. The pinch on consumers at the pump comes just ahead of the summer driving season, which kicks off with Memorial Day weekend.

The AAA national average shows gas prices up 11% over the past month and up nearly 22% from year-ago levels.

Two states have passed the $4 a gallon threshold. According to the AAA, the average price for a gallon of gas in Alaska is $4.042.

Connecticut is the second most expensive state to purchase gas in with an average price of $4.008 a gallon.

The least expensive state for drivers is Arizona, where a gallon of regular unleaded will set consumers back $3.565, well below the national average.

The second least expensive state to purchase gas in is Wyoming, where a gallon of gas averages $3.580.

Retail gas prices have been pushed up by crude oil prices, which have doubled in the last 12 months.