March 17th, 2005

Even OPEC can't stop oil's surge

Crude rushes to a record on fears of shrinking supply, overriding an effort to ease high prices

By LYNN J. COOK
Copyright 2005 Houston Chronicle

Oil and gasoline prices surged again Wednesday, despite an effort by OPEC to cool the market.

Crude oil prices shattered another record, shooting up $1.41 to close at $56.46. Oil's last record closing price was set Oct. 22 when crude reached $55.17.

Oil prices have climbed 34 percent since the start of 2005, and jittery oil traders sent prices soaring again Wednesday as they reacted to news from Isfahan, Iran, where OPEC ministers were meeting, and from the U.S. Department of Energy, which announced gas inventories are shrinking faster than expected.

The Organization of the Petroleum Exporting Countries agreed to immediately adjust its overall quota by 500,000 barrels per day, bumping up the official ceiling to 27.5 million barrels.

It's a move that's largely symbolic because it won't add any real barrels of oil to what's already in the market.

As it stands, OPEC's 10 member nations that are supposed to adhere to quotas are pumping 700,000 barrels a day above the old ceiling. Iraq, which has no quota, pumps as much as its strained infrastructure will allow. The group said it may boost the quota by 500,000 barrels this spring if prices persist.

OPEC's acting secretary general, Adnan Shihab-Eldin, was disappointed with the market reaction to OPEC's decision, saying, "Prices should have eased."

A few OPEC countries — but mainly Saudi Arabia — have ramped up oil production since last summer in an attempt to ease prices. Traders haven't taken much notice, and some oil ministers expressed their frustration in Isfahan.

"The market has confused us," said Iranian oil minister Bijan Namdar Zanganeh. Saudi Arabia's oil minister, Ali Naimi, told reporters, "Ask the market why prices went up."

An Energy Department report showed that while U.S. crude supplies swelled last week, gas inventories fell by 2.9 million barrels to 221.4 million, far more than expected.

Nationwide gas prices are breaking records at a blistering pace.

In Houston, regular unleaded hit another record Wednesday, averaging $1.93 per gallon. The U.S. average is teetering on the brink of a new high, too.

According to AAA, U.S. gasoline averages $2.053 — one-tenth of a penny away from the record set last May.

AAA spokesman Geoff Sundstrom said record pump prices won't stop Americans from taking to the open road, but he did say drivers are buying more fuel-efficient cars. He cited waiting lists for hybrids at dealerships.

General Motors backed up AAA's claims that Americans are changing their car-buying habits. GM revised its earnings outlook, saying it expects to lose money for this quarter because of slowed sales.

Oil's price spike and GM's bad news shook Wall Street on Wednesday. The Dow Jones Industrial Average tumbled 112 to close at 10,633.

Aliza Fan, senior analyst at energy consultancy John S. Herold, said oil and gas prices will continue to rise because demand is outstripping supply.

Most Americans don't realize how inexpensive today's prices are when compared to other nations where energy consumption is taxed at much higher rates, she added.

"There's a misperception by the American people than cheap gasoline is a God-given right," Fan said. "For the last couple of decades we've all enjoyed a long period of cheap prices but, as the past couple of years have shown, the higher oil prices don't seem to be going away.

"The global picture shows higher oil prices — and gasoline prices — are here to stay."

Bush pushes energy bill

President Bush used the opportunity to again call on Congress to pass a comprehensive energy bill.

"I would hope that when members go back to their district and hear the complaints about the rising price of gasoline, or complaints from small business owners about the cost of energy, that they will come back and ... get a bill to my desk that encourages conservation and will continue to find alternative sources of energy," he said.

With federal budgets tight, lawmakers crafting a new energy bill have been scaling back the goodies they previously planned to dole out to energy companies.

"I, frankly, don't think we need a lot of incentives for energy companies in the energy bill," Bush said. "The incentive is price. That's plenty of incentive for people to go out and find additional resources."

David Ivanovich in Washington and the Associated Press contributed to this report.

ljcook@chron.com david.ivanovich@chron.com