Arrow-right Camera
The Spokesman-Review Newspaper

The Spokesman-Review Newspaper The Spokesman-Review

Spokane, Washington  Est. May 19, 1883
Cloudy 52° Cloudy
News >  Business

Oil prices settle at a new high

Associated Press

WASHINGTON — The price of oil reached a new high Monday, settling at $41.72 per barrel as traders shrugged off Saudi Arabia’s pledge to immediately pump more crude because other OPEC members refuse to formally increase the cartel’s daily production quota.

Meanwhile, the average retail price of gasoline nationwide soared 4.7 cents last week to $2.064 per gallon — also a record — one week ahead of the start of the busy summer driving season, according to Energy Department statistics released Monday.

When inflation is taken into account, however, neither oil nor gasoline is nearly as expensive today as it was during the energy crisis more than 20 years ago.

Nevertheless, surging energy prices are seen as a potential threat to the global economic recovery, taking discretionary income out of consumers’ wallets and burdening certain industries, most notably the transportation sector, with higher operating costs.

Saudi Arabia, the world’s largest oil producer, announced late last week that it intends to boost crude output to 9 million barrels a day, beginning in June, in an effort to moderate high prices, which it considers harmful over the long-term because it could sap demand. That drove the price of oil below $40 on Friday.

But with other OPEC members reluctant over the weekend to publicly support Saudi Arabia’s proposal to raise the cartel’s daily production quota by more than 2 million barrels, or 8.5 percent, prices lurched above $40 again on Monday.

Light crude oil for July delivery rose $1.79 a barrel, or 4 percent, on the New York Mercantile Exchange, exceeding the previous high of $41.55 set a week ago. Gasoline futures also rose, finishing 4.1 cents higher at $1.4578 per gallon.

Analysts said the fundamentals of supply and demand are not as bad as current oil and gasoline prices would suggest.

But the combination of tight refining capacity in the United States, strong demand from China and fears that terror attacks could disrupt the global oil supply chain have given traders and speculators plenty of fodder to push prices higher, analysts said.

“We believe fundamentals support prices in the low $30 range,” said Lawrence Goldstein, president of the Petroleum Industry Research Foundation in New York.

Similarly, Saudi Arabia’s oil minister said Monday at an energy conference in Amsterdam that he believed $30-$34 per barrel was a “fair and reasonable price” for oil in the United States. He added, though, that OPEC had no plans to change its preferred price range of $22-$28 for its benchmark blend of crudes.

U.S. crude typically trades at a premium of several dollars above the price of OPEC’s benchmark. The OPEC benchmark stood at $36.40 on Friday, the most recent day for which the group complied information.

Over the weekend Saudi Arabia said it was willing to add another 2 million barrels of oil per day to the market, on its own, in order to keep the global economy on track.

While the Organization of Petroleum Exporting Countries did not act on the Saudi proposal to raise the output quota over the weekend, when members met informally at an energy conference in Amsterdam, analysts said the cartel could authorize a production increase when it meets June 3 in Beirut.

Seth Kleinman, an analyst at PFC Energy in Washington, predicted that other OPEC members would likely raise the group’s production quota since Saudi Arabia appears prepared to take matters into its own hands anyway.

“They may as well certify it. Otherwise it makes them look impotent,” Kleinman said.

The cartel’s official production quota is currently 23.5 million barrels per day, but analysts believe OPEC members are producing, or “cheating,” in excess of 2.3 million barrels a day above their current quota.

By raising the output quota, OPEC members with excess capacity, such as Kuwait, the United Arab Emirates and, most significantly, Saudi Arabia, would likely cheat even more, analysts said.

The Spokesman-Review Newspaper

Local journalism is essential.

Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are not tax deductible, but are predominately used to help meet the local financial requirements needed to receive national matching-grant funds.

Active Person

Subscribe to the Coronavirus newsletter

Get the day’s latest Coronavirus news delivered to your inbox by subscribing to our newsletter.