Prices of crude oil and gasoline rise as violence in Libya upsets markets

By Steven Mufson
Washington Post Staff Writer
Friday, February 25, 2011; 12:20 AM

Crude oil prices in New York broke through the $100-a-barrel threshold Thursday as violence in Libya continued to shake world financial markets and threatened to sidetrack the U.S. economic recovery.

But prices fell back later in the day, after a Saudi official said the kingdom would make up for any Libyan production lost as a result of upheaval there and the International Energy Agency said it was ready to release emergency stockpiles. President Obama also said the United States would be able to "ride out" the disruption in oil supplies.

After touching $103.41 a barrel, crude oil for April delivery ended up down slightly for the day, at $97.28 on the New York Mercantile Exchange. In Europe, the price of Brent grade crude oil, another important benchmark, hit $119 a barrel before dropping back to $114.

But the triple-digit petroleum price weighed heavily on stock markets for much of the day and heightened fears that high fuel costs could be a drain on consumers. Thursday's closing price was still about 50 percent higher than the price nine months ago and the higest level since September 2008.

For U.S. consumers, higher oil prices most directly affect drivers and truckers, who devour the vast majority of U.S. petroleum products. U.S. pump prices for regular gasoline jumped 4 cents a gallon overnight, to $3.23, an eight-cent increase in the past week and 55 cents more than a year ago.

"Coming just before springtime, the timing of the latest crude oil price spike is foreboding. If crude prices were to stay around $100 per barrel, we could expect to see the price for a gallon of unleaded regular rise to about $3.40 in the not-too-distant future," said John B. Townsend II, AAA Mid-Atlantic's manager of public and government affairs. "Motorists across the country are already spending in excess of$1.2 billion a day on fuel purchases, and that's likely to increase in coming weeks."

But oil is a component in the price of a vast variety of goods, including air tickets and food. Higher prices hit big users such as Wal-Mart, petrochemical firms and the U.S. military.

At FedEx, which every month adjusts its fuel surcharge on customers, chief executive Fred Smith said that higher fuel prices would have "not an enormous effect" but that "what's of much greater concern is the effect on the economy overall." He said high fuel prices were like a "tax imposed on the American economy" that would hurt people's buying power.

Because most U.S. oil is imported, money from gasoline sales is largely flowing overseas, inflating the U.S. trade deficit.

Adam E. Sieminski, chief energy economist at Deutsche Bank, said every $5 increase in oil prices could shave two-tenths ofa percent off global economic growth. "If growth was supposed to be 4 percent and ends up being 3 percent, that would be a nasty surprise," he said.

The price of crude oil has surged since Libyans began a revolt against leader Moammar Gaddafi last week, although it has been climbing for most of the past year.

Goldman Sachs analysts warned in a report that Libya's unrest created "significant upside risk" and reduced the ability of the Organization of Petroleum Exporting Countries to respond to further supply disruptions.

Some analysts argued, however, that the spike in oil prices was an overreaction to the political upheaval in North Africa and the Middle East. Michael Kouri, an analyst with UBS Securities Canada, said it was "a dramatic reaction since current disruption to crude supply at present is minimal."

Libya produces about 1.5 million barrels a day, or nearly2 percent of the world's supplies. Some of that oil is still moving, companies said. Repsol, a Spanish oil company, said production in the Libyan fields in which it is a partner was running at 160,000 barrels a day, down from 360,000. Eni chief executive Paolo Scaroni said in Rome that Eni's net production was 120,000, down from 280,000 barrels. Analysts also said more than 350,000 barrels a day of production comes directly from offshore platforms.

Moreover, world stockpiles of crude oil are substantial. The Goldman report noted that spare production capacity and inventories could cover more than 100 days of consumption even if Libya halted all exports.

But a trader at one major U.S. refiner said traders were worried about unrest spreading to Algeria or some other major oil-exporting country.

"What we don't want is for another oil producer to get involved in this," Sieminski said.

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