Tensions could push up pump prices--Several of world's oil nations are facing political turmoil

Read more By Andrew Caffrey, Boston Globe

Regardless of what happens in Iraq, American drivers could see another bout of high pump prices this summer because of political tensions elsewhere in the world.

Political violence in Nigeria has cut production of high-grade crude oil used for gasoline in the United States by 40 percent, forcing refineries on the East Coast in particular to scramble for replacement stocks and bid up prices.

Meantime, Venezuela's state-owned petroleum industry, which still hasn't fully recovered from the civil strife begun last December, is in such poor condition that some analysts warn it might see a drop in output.

These developments come when stocks in the United States are so low that the U.S. Energy Information Administration yesterday said "it will likely take many more weeks, or months, before U.S. petroleum inventories return to normal levels."

Despite a recent surge of imports, the agency said gasoline stocks are declining when suppliers should be reloading ahead of the peak summer driving season. Future prices for gasoline for April delivery rose 4 cents a gallon, or 4.44 percent, to 92.4 cents yesterday after the government released its report. Analysts say the system is so tightly stretched that even small, unanticipated developments could push prices up further.

"It doesn't look like we're going to have a lot of relief on the gasoline prices," said Michael Lynch, president of Strategic Energy & Economics Research Inc., a Massachusetts consulting firm.

Another looming worry: disquiet among oil workers in Colombia that could lead to a strike. If Colombia "went down, clearly we would be looking at a very tight situation for the U.S. Gulf for gasoline production," said David Fyfe, an oil analyst for the International Energy Agency in Paris.

The near-term global outlook for oil supply and prices continues to see-saw. Prices had plummeted to $26 a barrel, from $38, when it looked like the U.S.-led military coalition was heading to swift victory in Iraq. That had begun to pull down retail gasoline prices. But now, oil prices have been creeping back up as those forces encounter stiffer resistance from Iraqi fighters, in addition to concerns about the situation in Nigeria. Yesterday, oil futures on the New York Mercantile Exchange rose 66 cents, to $28.63 a barrel.

One big factor in the earlier drop is increased output from Saudi Arabia and other producers to keep spiraling prices from harming the U.S. economy, and to compensate for lost Venezuelan and Iraqi suppliers. Indeed, some analysts are now predicting that the Saudis and other producers may soon cut back output to prevent a glut that could collapse prices.

But the rosy macro outlook doesn't necessarily filter down equally to local energy markets.

Saudi Arabia's oil, for example, is high in sulphur, and so most of it is sent to refineries in the U.S. Gulf region that are equipped to process it into gasoline. East Coast refineries, meantime, got about 26 percent of crude oil supplies from Nigeria and Venezuela last year, while Venezuela provided about 10 percent of the region's stocks of finished gasoline, leaving the region vulnerable to problems in those countries.

Venezuelan oil production has bounced backed markedly since the strikes petered out, with analysts saying oil production is now around 2.4 million barrels a day. But they add that it will be weeks before the state-owned petroleum company will be exporting gasoline from its refineries in significant amounts.

Moreover, the Venezuelan system is in poor shape after the strike, and even in the best of times production from existing wells declines so quickly that analysts say the system requires billions in ongoing investment and warn that production might fall further.

Meanwhile, the situation in Nigeria remains highly volatile since the violence that erupted in the West Niger delta March 12 prompted three major oil companies to shut or curtail facilities and evacuate workers, cutting the nation's oil output by 800,000 barrels a day. Producers elsewhere in Nigeria are believed to be increasing output, which may partially offset current declines. But analysts said the intensity of the current fighting has them worried that the instability in the West Niger delta could last for months.

The war with Iraq is the wild card in all of this global turmoil. If the war does indeed go quickly, then crude prices could fall further, pulling down gasoline prices. Already the decline in crude prices from the March highs has been "so profound" that gas prices should be in the $1.50 to $1.60 a gallon range by summer, down from the $1.69 a gallon national average, Energy Security Analysis Inc., a Wakefield energy consultancy, said yesterday.