Oil over $30 on fears about OPEC's plans
Friday, May 19th 2000, 12:00 am
By: News On 6
Crude oil gushed above the $30 per barrel mark Thursday for the first time since members of the Organization of the Petroleum Exporting Countries decided to boost production two months ago.
The price of crude oil rose $1 a barrel after continued speculation that OPEC leaders won't increase production when they meet in June.
Analysts were already concerned about tight supplies of crude oil and gasoline as the summer driving season approaches.
"Gasoline prices could be extremely peaky regionally," said energy analyst Peyton Feltus, owner of Randolph Risk Management of Dallas.
"I don't think the Dallas area is going to experience quite the crunch that both coasts will - particularly the West Coast and secondarily the mid-Atlantic states."
For the immediate future, gasoline prices at the pump will go up before they go down, Mr. Feltus said.
"There probably won't be much relief before the end of the summer. I don't think prices will decline much more than a dime or 12 cents before then," he said.
A barrel of benchmark West Texas Intermediate crude oil jumped $1.01 a barrel from Wednesday's close on the New York Mercantile Exchange to close at $30.33, up 3.4 percent for the day.
Crude oil last exceeded $30 on March 17, when it closed at $30.91 on the NYMEX.
But prices began falling as expectations grew that OPEC oil ministers would increase exports at their annual meeting.
On March 28, OPEC members decided to restore output to the levels they had maintained before a March 1999 decision to limit production. In addition, OPEC agreed to try to keep oil prices between $22 and $28.
That price band for a basket of different oil prices translates to about $24 to $30 for West Texas Intermediate.
After the OPEC vote, prices slid steadily for two weeks, bottoming out at $23.85 on April 10. However, prices have climbed back into the high $20s in recent weeks.
Energy consultant Kenneth Miller of Purvin & Gertz Inc. of Houston attributed the higher prices, in part, to OPEC's statements that there is no need to boost production at its June meeting.
In addition, Mr. Miller and Mr. Feltus said refineries are having a difficult time shifting over to Phase II reformulated gasoline required by the Environmental Protection Agency for automobiles in about 30 percent of the United States, including Dallas-Fort Worth.
That, along with questions about the additive MTBE in gasoline and changes in gasoline in Europe, has made it more difficult to assure a good supply of gasoline for the summer, Mr. Miller said.
Longer term, the moderates in OPEC, such as Saudi Arabia and Kuwait, will work to keep prices lower within the price band adopted two months ago, Mr. Miller said. They realize that prices over $30 are too high, he said.
"It's not good for the producers long term, and it's not good for the public," he said.
Purvin & Gertz believes that oil prices will settle into the $20 to $25 range for West Texas Intermediate, he said.
Mr. Feltus also said OPEC will respond if prices stay at current levels.
"In the coming 12 to 18 months, there will be additional OPEC production that will ease what we could call a snug market," he said.
"OPEC doesn't really want $30 crude oil. I think their price band is quite reasonable. They have enough production to achieve that price band," Mr. Feltus said.
He blamed the EPA for imposing strict requirements on refineries and on gasoline formulas that make it difficult for many refineries to produce needed gasoline.
There is enough crude oil out there, but getting it to the gasoline pump may be difficult, he said.