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Gas Prices Follow Oil Upward | Oil Watchdog

Gas Prices Follow Oil Upward

Tue, Oct 30, 2007 at 12:09 pm

    Gas Prices Follow Oil Upward

    Los Angeles Times
    October 30, 2007

    by Ronald D. White, Times Staff Writer

    Gasoline prices follow oil upward;

    Crude futures hit new highs. The weak dollar, stormy weather in the Gulf of Mexico and other factors are cited.

    Hold on to your wallets.

    Oil cruised to another record high Monday and gasoline prices
    rose to their highest levels since the summer driving season in
    California and the U.S., strongly influenced by a weak U.S. dollar and
    troubling events in many parts of the world, analysts said.

    Crude oil for December delivery traded as high as a record
    $93.80 a barrel on the New York futures market before settling at an
    all-time closing high of $93.53, up $1.67.

    Analysts said fundamentals weren’t to blame.

    "There is no shortage of oil. Demand is weak and it will
    continue to be weak," said Fadel Gheit, senior energy analyst at
    Oppenheimer & Co.

    But oil is traded in dollars, and the U.S. currency has
    continued to sink against most other major currencies in recent weeks.
    A weak dollar makes oil even more attractive to investors because it
    makes the commodity cheaper in other currencies.

    Traders also reacted to news that Mexico’s state-owned oil
    company shut down about 20% of its daily crude oil production, or
    600,000 barrels a day, because of stormy weather in the Gulf of Mexico.
    That came one week after rough seas were blamed in the deaths of more
    than 20 offshore oil workers there.

    Escalating tensions between Turkey and Kurdish rebels on both
    sides of its border with Iraq were also cited, with as many as 100,000
    Turkish troops massing for a possible incursion. Other analysts cited
    the threat of more unrest in Nigeria, where six workers at an Italian
    oil facility were kidnapped last week.

    "Right now all of the bullish things are happening at the same
    time, but I think there will be a correction before we reach $100 a
    barrel. In the meantime, it is hard to find a reason for these guys to
    take profits," said Phil Flynn, vice president and senior market
    analyst for Alaron Trading Corp. in Chicago.

    Others aren’t so sure.

    "The oil market may be only one or two events away from
    $100-plus oil," said Daniel Yergin, chairman of Cambridge Energy
    Research Associates and author of "The Prize," a Pulitzer-winning
    history of the oil industry.

    "Oil prices are becoming increasingly decoupled from the
    fundamentals of supply and demand," Yergin said at a conference Monday
    at Georgetown University in Washington. "With prices over $90 a barrel
    and strong anticipation of $100, the oil market is showing signs of
    high fever, stoked by fears of clashes in the Middle East and resulting
    disruptions of supply." The most likely cure for the fever, he said,
    would be an economic slowdown, which would dampen demand for oil.

    Oil market critics took the system to task for ratcheting up the worst-case-scenario fear premium at the expense of consumers.

    "Speculation is largely to blame. The victims, as usual, are
    ordinary motorists and people using petroleum products to heat their
    homes as winter approaches," said Judy Dugan, research director of the
    Santa Monica-based Foundation for Taxpayer and Consumer Rights.

    The rising price of oil has been showing up quickly at the
    pump. The U.S. average price rose 4.9 cents to $2.872 for a gallon of
    self-serve regular, its highest level since Aug. 6, the Energy
    Department said Monday. In California, drivers paid an average of
    $3.159 a gallon, up 1.6 cents, the highest since late June.

    "The prices are supposed to come down before the holidays,"
    said downtown Los Angeles resident L.B. McGowen, 36, as he watched $10
    translate to slightly more than three gallons of gas for his bronze,
    late model Cadillac DTS. A sign at the Shell station at Grand Avenue
    and Olympic Boulevard told him the price was $3.199 for a gallon of

    McGowen is the health and fitness director at the
    Watts/Willowbrook Boys and Girl Club. He’s also a personal trainer who
    used to drive as far as Santa Monica to see clients, but not since gas
    prices began to rise again.

    "Now, they have to come to me," McGowen said.

    But McGowen’s experience at the pump might be worse by spring even if there is a sharp drop in oil prices, said one expert.

    It’s the older and lower priced oil that is being processed at
    the nation’s refineries right now, said John Silvia, chief economist at
    Wachovia Corp.

    As more expensive oil makes its way to refineries, retail
    gasoline prices will head higher, he said. Oil accounts for about half
    the price of gasoline at the pump.

    "The timing of this is part of the concern. We should not be having anything like this at this time of the year," Silvia said.
    Contact the author at: ron.white@latimes.com.

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