Combination of factors expected to spur rising fuel prices

| Friday, January 16, 2004

Historically, the price of fuel rises and falls with the cost of crude oil – and that’s just one reason the average U.S. retail price of diesel fuel spiked to $1.551 from the previous average of $1.503, as reported Jan. 12 by the U.S. Department of Energy.

The February contract for crude oil futures closed Jan. 13 on the New York Mercantile Exchange at $34.43 per barrel, 6.7 percent higher than a year ago. In fact, prices climbed above $35 per barrel briefly Jan. 13, the highest price since last March just before the Iraqi War, before settling back.

According to press accounts, OPEC made a conscious decision to let the price go above $30 a barrel to offset the weakness of the dollar. OPEC ministers have said the sliding dollar, the currency used in oil trading, means that producers need higher prices to protect their purchasing power. OPEC will meet in Algiers, Algeria, Feb. 10 and will most likely decide to leave output unchanged, reports said.

The unpredictability of Mother Nature also played a role in rising fuel prices.

Heavy demand for heating oil used in the frozen Northeast also drove diesel prices higher. The highest average prices in the nation were in the New England area, where the average price is currently $1.713 per gallon. That topped the average California price of $1.680 per gallon, where prices from week-to-week are typically the highest in the nation.

The bad news – cold weather in the Northeast is expected to drive U.S. inventories of fuel oil down to 28-year lows. Stockpiles of fuel oil dropped by 1.7 million barrels during the New Year's week to 269 million barrels, the lowest inventory since 1975, according to a U.S. Department of Energy report.

Moreover, the Northeast is expecting below average temperatures the next two weeks. The region consumes 75 percent of all fuel oil.

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