Oil prices climbed back into record territory yesterday after energy traders shrugged off pledges by Saudi Arabia to increase production and focused instead on OPEC discord and the shutdown of a major oil platform in the Gulf of Mexico.
Gasoline prices, meanwhile, continued their steady upward march. Pump prices for regular unleaded gasoline increased 4.7 cents in the past week, to a national average price of $2.064 a gallon, the Energy Department's Energy Information Administration said yesterday.
Regular unleaded prices rose nearly a penny in Maryland to an average of $2.015, while Virginia prices climbed 1 cent to $1.934, according to the AAA motor club survey. Experts said it's likely gasoline prices will keep rising as the United States heads into the vacation-heavy summer driving season, regardless of what oil-producing nations do at this point.
Crude oil contracts for July delivery jumped $1.79 -- or 4.5 percent -- to close at $41.72 a barrel, the highest closing price since futures contracts began trading on the New York Mercantile Exchange in 1983. The jump came despite Saudi Arabia's assurances that it would boost oil output by 10 percent in June, to 9.1 million barrels a day. Energy Secretary Spencer Abraham told reporters the Saudis could produce as much as 10.5 million barrels a day if world demand continues to rise.
But Saudi requests over the weekend for other oil producers to step up production were greeted with considerable skepticism by the markets and considerable resistance from other members of the Organization of Petroleum Exporting Countries, said John Felmy, chief economist at the American Petroleum Institute.
"The oil traders understand history, and the diplomats and politicians don't," said Philip K. Verleger Jr., an oil market economist at the Institute for International Economics.
Of OPEC's 11 members, only Saudi Arabia, the United Arab Emirates and Qatar have significant unused capacity, Felmy said. Any increased production by those three would penalize the others. OPEC's decision to defer an agreement until its June 3 meeting in Beirut signaled to traders that a broader production increase may not be coming.
And oil markets realize that OPEC members are already producing 2.5 million barrels a day above their quotas, said Mark A. Baxter, director of the Maguire Energy Institute at Southern Methodist University's Cox School of Business.
"All they will be doing is getting the quotas to reflect what they're doing anyway," he said.
There may be little that Saudi Arabia can do on its own to temper oil prices in the short run, said Amy Meyers Jaffe, an energy research specialist at Rice University's James A. Baker III Institute for Public Policy. The markets are bidding up oil prices in part because of fears of terrorist strikes or political instability in the desert kingdom. The Saudi pledge did nothing to alleviate those fears.
Verleger said additional Saudi oil will not arrive for three months or more. In the meantime, oil production actually took a blow over the weekend, when Royal Dutch/Shell Group announced it had to shut its deep-water Mars oil platform in the Gulf of Mexico because of a leak. That cost the market 150,000 barrels a day. Iraq's third-largest oil refinery was shut down as well, because attacks on pipelines had cut off flow to the plant.
Democrats continued to bludgeon President Bush yesterday with charges that his close ties to the oil industry have kept him from intervening in the market. But Jaffe said the Saudi pledge will probably lower prices by mid-summer, and certainly should by the November election. The summer driving season should ease demand by then, as will seasonal bottlenecks that develop as refineries switch to summer gasoline blends. High prices should also temper demand, especially in the developing world.
Not all analysts were so sanguine. Any increased oil production could be swallowed by rising demand, especially in booming China and a quickly recovering United States, Felmy said. The long-term solution will have to come from increased oil production in Russia to satisfy China's ravenous demand and ease concerns over Middle Eastern terrorism, Baxter said. But for Russia to shoulder that burden, major new port facilities and pipelines will have to be built.
"That will take years," Baxter said.