Gashostage.com

Oil prices settled above the psychologically important $70 a barrel mark on Friday for the first time since August 2006 on worries about gasoline supplies in the heart of the summer driving season.
 
Light, sweet crude for August delivery rose $1.11 to settle at $70.68 a barrel on the New York Mercantile Exchange after rising as high as $71.06 earlier in the session. Oil last closed above $70 a barrel on Aug. 31.

At the pump, gas prices continued to defy analyst expectations by falling 0.4 cent overnight to a national average price of $2.971 a gallon, according to AAA and the Oil Price Information Service. Retail gas prices, which typically lag futures markets, peaked at $3.227 a gallon on May 24.

Analysts have predicted for weeks that retail gas prices are bound to stop falling, and could even rise again, as demand picks up during the summer driving season. Demand is especially strong between the July 4 and Labor Day holidays.

Crude futures had fallen as low as $67.77 on Tuesday, the day before a government report showed gasoline fell when analysts had been expecting a big build. That Wednesday report fueled the late week rally into $70 territory.

The discovery of an unexploded car bomb in west London also boosted prices, analysts said.

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In energy on Monday June 11th

Crude oil prices bounced back from Friday’s drop as light, sweet crude picked up 77 cents to $65.53 a barrel on the New York Mercantile Exchange. Gasoline futures ticked higher, as well.

I am actually surprised that oil prices have actually fallen this summer, it is not so surprising that fuel prices have not followed the same course.  Gas prices have not risen as dramatically as we all may have suspected it would, but it is still early and if the crisis in the Middle East continues to heat up, we might just get that oil price increase as well.

Gas prices are spiking again — to an average of $3.22 a gallon, and close to $4 a gallon in many areas.

And some oil executives are now warning that the current shortages of fuel could become a long-term problem, leading to stubbornly higher prices at the pump.

They point to a surprising culprit: uncertainty created by the government’s push to increase the supply of biofuels like ethanol in coming years.

In his State of the Union address in January, President Bush called for a sharp increase in the use of biofuels, along with some improvement in automobile fuel efficiency to reduce America’s use of gasoline by 20 percent within 10 years. Congress is considering legislation calling for a nearly fivefold increase in the use of ethanol.

That has forced many oil companies to reconsider or scale back their plans for constructing new refinery capacity.

In hearings before Congress last year, oil executives outlined plans to increase fuel production by expanding existing refineries. Those plans would add capacity of 1.6 million to 1.8 million barrels a day over the next five years, for an increase of 10 percent, according to the National Petrochemical and Refiners Association.

But those plans have since been scaled back to more than one million barrels a day, according to the Energy Information Administration, an arm of the federal government.

“If the national policy of the country is to push for dramatic increases in the biofuels industry, this is a disincentive for those making investment decisions on expanding capacity in oil products and refining,” said John D. Hofmeister, the president of the Shell Oil Company. “Industrywide, this will have an impact.”

The concerns were echoed in a recent report by Barclays Capital, which said the uncertainty about the ethanol growth “will do little to accelerate desperately needed investment in complex United States refining units.”

“Indeed, it is likely to deter and further delay investment, if not rule out many refinery investments completely.”

Even so, the current cost of gas — which in real terms is approaching the old peak of $1.42 a gallon in March 1981, or $3.31 adjusted for inflation — has renewed suspicions that the oil industry is looking for ways to keep profits high by delaying much-needed investments. Senator Charles E. Schumer, Democrat of New York, began hearings yesterday on the topic “Is Market Concentration in the U.S. Petroleum Industry Harming Consumers?”

And the House voted yesterday by a narrow margin to penalize any oil companies, traders or retailers found to be charging “unconscionably excessive” prices for gasoline and other fuels. President Bush will probably veto the measure because the White House has said such legislation would amount to price controls.

Experts point to many short-term reasons the United States is running low on gasoline, causing prices to rise: many oil companies are doing maintenance work on refineries; new federal rules make fuels cleaner but costlier; and a string of delays, fires and accidents in the industry have reduced supplies just when drivers are starting to hit the road for summer vacations. Many analysts predict prices will keep rising, then soften later in the summer as demand trails off.

Energy executives dismissed any suggestions that they were intentionally keeping gasoline off the market.

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