Oil prices creeping up again

USA Today Posted 3/27/2003 10:38 PM
By Barbara Hagenbaugh and James R. Healey

Oil prices are rising again as concerns grow that the Iraq war will be longer than expected and that unrest in OPEC member Nigeria will lead to supply problems.

West Texas Intermediate crude oil for May delivery rose $1.74 to $30.37 a barrel Thursday, a 6.1% increase. It was the second consecutive day of gains and the first time prices were above $30 since the war started.

But the average price of a gallon of regular unleaded gas slipped to $1.671, motorists' club AAA reported. That was down nearly a penny overnight — considered a big change — and is down from the record U.S. average of $1.722 per gallon set last week.

Analysts say oil prices will likely go higher — leading to a reverse in recent gas price declines — if more news from Iraq suggests the war might drag on or if it becomes clear the unrest in Nigeria, the fifth-largest source of U.S. oil imports, is more than temporary. Other issues, including low inventories and the switch to special-blend gas for summer, will also tend to push gasoline prices higher.

"There's just not enough oil produced elsewhere in the world to make up for all of those disruptions," says Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas.

Brown says higher oil prices are likely acting as a drag on the economy. When consumers and businesses have to spend more on energy, they have less to spend in other parts of the economy or to hire new workers.

Oil output in Iraq, which normally pumps about 2 million barrels per day, has been halted. Key oil fields secured by British forces earlier this week will take three months to repair, United Kingdom Air Marshal Brian Burridge said Thursday. British forces found the 500 oil wells in disrepair and booby trapped with detonation devices.

In addition to the problems in Iraq, fighting between tribes in Nigeria has led to an approximately 40% cut in oil output in the country that exports little else. Oil giant Royal Dutch/Shell announced shipment delays Thursday as foreign oil firms said a truce among warring tribes would spell no quick return to oil fields after workers fled.

Markets have been shaky for months as unrest in Venezuela took much of that country's oil off the market. While production there seems to have come almost completely back, oil watchers are wondering if the South American nation can maintain output levels with the fewer workers it now has.

American Petroleum Institute chief economist John Felmy called the situation a "perfect storm" for prices.

Contributing: Donna Leinwand in Doha, Qatar, and wire reports