Crude oil prices push toward $90 a barrel

By Steven Mufson
Washington Post Staff Writer
Friday, December 10, 2010; 8:37 PM

Crude oil prices have flirted with the $90 a barrel threshold this week, pushing up gasoline prices at the pumps and crimping consumers in the middle of the peak shopping season.

The $90 level was last seen in early October 2008 when crude oil prices were plunging along with the economy.

But oil prices have retraced their steps in the halting global recovery. The International Energy Agency on Friday raised its monthly forecast for global crude oil demand in 2011 for the third consecutive time.

That's good news for the Organization of Petroleum Exporting Countries, whose members are meeting Saturday in Quito, Ecuador. The group, which accounts for about 40 percent of world supplies, is expected to make no change in its output quotas.

For U.S. consumers, the news is not so good. The nationwide average price for regular gasoline prices has risen to $2.98 a gallon, up a dozen cents in the past month and 35 cents higher than a year ago.

Oil analysts blamed the rise in oil prices in recent weeks to a variety of factors: The Federal Reserve's plan to buy Treasury bonds to stimulate the economy; the ramping up of new refineries in China this fall; and an unusually cold start to winter in Europe and Asia, leading to a drawdown of petroleum inventories.

"It's a winter wonderland," said Edward Morse, a veteran energy analyst at Credit Suisse who cited the cold snap.

But Morse and others predicted that crude oil prices - which have fluctuated between $68 and $89 a barrel this year - would probably stay within a relatively narrow range. The price of oil for January delivery fell 58 cents Friday to $87.79 a barrel.

Roger Diwan, an oil expert at PFC Energy, a Washington advisory firm, said that despite a rise in consumption, there was plenty of oil supply, refinery capacity and transportation available.

"There are seasonal issues and money allocation issues," he said, "but I don't think there's the making of a big bubble."

Indeed, despite widespread concern about a weaker dollar and inflation, oil traders and investors are also worried that China's moves to rein in inflation could lead to a slowdown in its rapid growth rate.

On Friday, the People's Bank of China boosted financial reserve requirements for the nation's banks, a step aimed at curbing lending.

China is a key engine of growth in world petroleum demand; over the past year, it has accounted for about half of the growth in oil demand outside the 34-nation Organization for Economic Cooperation and Development. But the recovery in U.S. demand from depressed levels last year has been almost as great, according to the Energy Department's Energy Information Administration.

OPEC's leading member, Saudi Arabia, has said it is content with prices fluctuating from $70 to $90 a barrel. The kingdom, which is the world's largest oil exporter, is one of just three OPEC members to have curtailed output to prop up prices. But it also has the most leeway to boost production to limit price increases.

Some OPEC members are planning to increase output over the coming months. Iraq, where Western oil companies are working to repair damaged facilities and increase production at some of the country's most prolific fields, is planning to increase output by 300,000 to 500,000 barrels a day, Morse said.

In addition, production is rising from fields being developed off the west coast of Africa.

Rising production in Iraq and Nigeria will boost OPEC capacity to 36.94 million barrels a day by 2015, the IEA forecast said. Currently OPEC is producing approximately 29.25 million barrels a day.

Even if prices decline slightly, their level is relatively high given the weakness of the global economy. That has encouraged big oil companies planning capital spending budgets.

On Thursday, Chevron announced that it would sharply increase its capital spending in 2011, boosting it to $26 billion, up $4.4 billion from this year. Eighty five percent of that will go to exploration and production of oil and natural gas.

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