Oil Prices Top $60 A Barrel on Supply Fears
Prices on August contract light sweet crude continue to climb on the New York Mercantile exchange as Tropical Storm Cindy continues to pour water on the Gulf Coast.
The price hit $60.90 a barrel in midday trading Brent crude hit $59.25. Gasoline futures were trading up to $1.76 a gallon and heating oil hit $1.79 a gallon. These prices mark some of the highest on record and they show no signs of slowing down, particularly as Cindy works over the coast now and Dennis lines up behind her.
These prices are driven by fears of major supply interruptions from the offshore oil platforms in the Gulf of Mexico. Most of the rigs were evacuated yesterday and as many weather watchers predict Dennis could quite easily become a full-blown hurricane, workers probably won’t return to the rigs until next week. According to the U.S. Minerals Management Service, gas and oil daily production in the Gulf is down 3%, driven down by the storm.
Right now, the most notable increases are in the refined products. With gasoline up about 6 cents and heating oil 5 cents a gallon, the prices at the pump will get painful very quickly. According to GasPriceWatch.com, the average is $2.19 a gallon with the high around $2.89 out in San Francisco. It doesn’t take much to figure out these prices won’t hold for long.
Also playing into the mix is recent news suggesting Iran’s new president was also a hostage taker during the 1979 hostage crisis when the U.S. embassy was raided by a mob of college students back during the Carter administration.
Refineries also play into speculative fears as most refineries are pumping near capacity. Many feel these refineries are aging and susceptible to breakdowns that would severely hamper what most already consider a bottlenecked supply of oil in the U.S.
There’s also some speculation that once the U.S. is done in Iraq, they may head home via the Tehran highway and if that happens then the oil prices will skyrocket over $80 a barrel.
Demand in the U.S. remains very high with consumption up significantly over last year. As prices at the pump continue to climb, many continue to ask where will it stop. Today’s price hikes may not be the end of it either as the weekly Reuters survey of energy insiders showed they expect crude inventories to drop about 1.2 million barrels.
OPEC said they’ve taken increasing production off the table for now essentially saying that adding 500,000 barrels a day will have no appreciable effect as long as oil remains bottlenecked at refineries.
In any event, the only real practicality for most people remains the cost at the pump and as mentioned above, as long it continues to climb, it can only hurt the consumer, which is generally good for no one.
John Stith is a staff writer for WebProNews covering technology and business.