High gas prices here for the long haul

By James McNair –
Against a backdrop of colder temperatures and bare trees, one facet of everyday life continues to evoke a very summery feeling: high gasoline prices.
Six months after the national average for regular unleaded fuel reached the $2 mark, gasoline prices remain near that level.
From all appearances, U.S. consumers will have to get used to gas-pump grief into 2005.

Combine higher gasoline demand, historically low crude-oil inventories and a drop-off in refining capacity, and you end up with a market that refuses to retreat to the heady days of even buck-fifty gas.
“Consumers in the past have always been rewarded for these price spikes with prices going back to even lower levels,” said Ben Brockwell of the Oil Price Information Service, based in Rockville, Md. “This rally tells us we’ve moved over into a new world order of oil pricing, which are record numbers sustained over a long period of time with very little relief in sight.”
The commodity futures market is betting that prices aren’t falling anytime soon – and not much at all in 2005.
The January contract for West Texas Intermediate light crude closed Monday at $49.76 a barrel. That’s down from the all-time high of $55.87 Oct. 22 but still well above the $26 levels of 14 months ago. Looking at futures prices through the end of 2005, oil prices are not expected to fall lower than $45 a barrel.
Eric Bolling, a crude oil futures trader at the New York Mercantile Exchange, said uncertainties are prompting the market to value oil at high levels well into 2005.
“As you go further out, there are all these question marks that remain,” he said. “Whether or not there will be problems with supply, whether the weather is bad or not this winter, whether or not there will be terrorism. So many things affect the crude oil price.”
Normally, the oil markets would respond to higher prices with higher output. But in the past 18 months, Brockwell said, excess refining capacity has dropped from 3 million barrels a day to less than 500,000. Without that excess capacity, refiners simply cannot respond with a flick of the switch.
“At these prices, everybody wants to have oil, refine oil and sell oil,” Brockwell said. “Everybody and his brother who has the wherewithal to invest in oil-refining capacity is going to do so. The heartbeat is already quickening for them to put even more oil out in the market and take advantage of these high prices.”
Oil prices hinge on a number of factors that make prediction elusive.
For example, the Centre for Global Energy Studies, a London-based forecaster founded by former Saudi Arabian oil minister Sheikh Zaki Yamani, predicted last week that Brent crude will average $36.70 a barrel in 2005 with a normal winter – or $48 a barrel with a harsh winter.
Other variables can fly into the picture: hurricanes in the Gulf of Mexico, terrorist attacks in the Middle East and, among others, labor disputes in leading oil-producing countries.
In the near term, the U.S. Energy Information Administration offers a gloomy forecast for gasoline prices. Its monthly outlook report Nov. 9 said drop-offs in gas prices are unlikely. More likely, it said, prices will rise 10 to 15 cents a gallon by spring.
For Cincinnati resident Lanier Walker, more expensive gasoline meant a more expensive Thanksgiving road trip to Charlotte, N.C., and Charleston, S.C. in his Chrysler Concorde LXI. Even though he doesn’t make a big fuss about the higher prices, Walker is skeptical of them.
“I think somebody’s making a hell of a lot of profit on it,” he said. “This is definitely not supply and demand.”
Source: Wausau Daily News