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By Jason Simpkins
The price of oil surged to another record high yesterday (Monday) as oil ministers from the Organization of Petroleum Exporting Countries (OPEC) again resisted pressure to increase output.
"Any increase in production now will not have an impact on prices because there is a balance between supply and demand," OPEC president Chakib Khelil said, according to a report on Sunday by Kuwait's state news agency. "We in OPEC raised production last year and prices remained high. If we increase production we will not find people to buy the increment."
OPEC has held production targets steady at each of its last three meetings - March 5, Feb. 1, and Dec. 5 - routinely blaming speculation and a weak dollar for the soaring cost of oil. The group has also expressed concern that the price would recede on its own as economic conditions deteriorate and demand drops in the world's largest oil consuming nation - the United States. Though that hasn't been the case so far.
Tight supplies and strong demand in emerging markets such as India and China have driven the price of oil to a series of record highs.
After rising 6% last week, the price of West Texas Intermediate crude hit $117.40 on the New York Mercantile Exchange yesterday. Oil prices have climbed 77% in the past year.
"If there is a correlation between speculation and oil prices, it is primarily speculative money is following rising prices driven up by fundamentals, rather than that the speculation is causing rising oil prices," Mark Mathias of Dawnay Day Quantum in London told Reuters. "Pointing to speculation and need for regulation is just a way of OPEC saying that this is not a problem that they need to solve."
Earlier this month, several U.S. senators including Democrat Byron Dorgan of North Dakota, said they were considering legislation that would require commodities exchanges to boost margin requirements. However, critics say such action would simply raise the costs for major industry participants, and achieve little else. Indeed, OPEC could increase its own levels of transparency by making more of their own production data available.
We have yet to see a substantial drop in demand so far, and as long as OPEC continues to hold capacity steady, higher oil prices are a near certainty. And that bad news is only made worse by the onset of the summer driving season. As motorists take to the road this summer, they may be forced to pay as much as $4 a gallon for gasoline.
The average price for a gallon of gasoline in the United States hit a record high $3.4737 yesterday, according to the nationwide Lundberg survey of about 7,000 gas stations. Gas prices have already jumped 53.47 cents this year.
"Behind the record-high pump prices are other record highs that are less visible to the naked eye of the motorist, including record high crude oil prices and a record number of regulations that are adding costs to refining," Trilby Lundberg told Reuters.
Refiners and retailers have not yet fully passed their high costs on to consumers, Lundberg said. So, in effect, the high gasoline prices we're seeing now are only the beginning.
Even the Energy Information Administration predicted the average price for gas would peak at $3.60 per gallon by late spring with interim price spikes of more than $4 a gallon - a prediction many analysts saw as conservative.
"If crude prices do not retreat, then we will see somewhere between 10 cents to 30 cents rise in the retail price of gasoline, probably in the next few weeks," Lundberg said.
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