Oil markets surged Monday despite a plan by OPEC to pump more crude, and the cartel's president warned of a looming worldwide energy crisis if consuming nations don't produce and refine more petroleum.
Meanwhile, high prices of crude oil and chronic refinery problems helped kick the average gasoline price for California motorists to a record of nearly $1.85 a gallon, the Energy Department reported Monday.
"The world is facing a possible energy crisis and OPEC alone simply doesn't have the power to control it," said Ali Rodriguez, Venezuela's minister of energy and mines and president of the 11-member Organization of Petroleum Exporting Countries. "There isn't a big risk in the short term, but we could see $40 oil if there's a cold winter."
Some energy market analysts agree with such predictions, especially if a cold winter hits, and foresee gasoline hitting $2 a gallon. Inventories of gasoline and home heating oil are extremely low, which causes prices to surge with crude oil price increases or even minor production or supply disruptions.
"The hard, cold reality is OPEC may not be able to stop this ball that is rolling downhill," said Phil Flynn, senior energy analyst with Chicago brokerage firm Alaron Trading. "This could be the beginning of the end for the gas-guzzling generation."
OPEC agreed Sunday to boost production by 800,000 barrels a day at a time when oil traders are predicting that 1 million to 1.5 million additional barrels are needed to rebuild scant inventories of gasoline and heating oil and to bring oil futures prices down from levels last seen during the Persian Gulf War. Analysts expect only about 200,000 additional barrels to reach market because OPEC members are already pumping more than their formal allotments.
OPEC ministers, defending their third production increase this year at a flurry of news conferences after their meeting in Vienna, said they are ready to boost output again if oil prices do not fall. But the ministers blamed continuing "confusion in the oil market" on bottlenecks in the refining industry, speculation in the futures market and heavy taxes on petroleum products--factors all beyond the cartel's sway.
The head of an international energy watchdog group said that uncertainties surrounding OPEC's move may have made the oil market even more volatile, a fear backed up by trading Monday on the oil futures market. The U.S. benchmark price for October contract West Texas intermediate crude rose $1.51 to $35.14 a barrel on the New York Mercantile Exchange.
The world "clearly needs more oil," said Robert Priddle, executive director of the International Energy Agency in Paris. "The producers say they have set themselves the objective of achieving stability through unilateral market management. So far they have achieved just the reverse," causing prices to soar in the last 21 months from a $10-per-barrel low brought about by previous OPEC decisions to reduce production, he said.
The upward spiral in oil prices continues to be felt by consumers.
In San Francisco, the average price of self-serve regular gasoline already has cruised into the $2 neighborhood--$2.02 a gallon, to be exact, on Monday--according to the AAA Fuel Gauge Report. By comparison, AAA said, the average price in Los Angeles was $1.69.
Statewide, the retail average for self-serve regular gasoline hit a record $1.847 a gallon, up from $1.79 the previous Monday, the Energy Information Administration said. (Still, after adjusting for inflation, California drivers paid more for gasoline back in 1981. The pump price then was $1.346 a gallon, the equivalent of $2.65 in 1999 dollars.)
Nationwide, the average for self-serve regular rose to $1.56 from $1.53, based on a weekly survey of 800 gasoline stations by the information arm of the Energy Department.
Prices on the gasoline spot market in California began declining late last week, indicating that supply is improving and may begin to bring pump prices down soon, a spokesman for the California Energy Commission said.
Meanwhile, high fuel prices have led in recent days to fuel surcharges for airline passengers and for package and freight shippers, raising concerns about long-term economic effects.
"The big question is what [oil] price is recessionary to the global economy," said Tyler Dann, a Houston-based senior oil analyst for Banc of America Securities. "Our analysis is indicating that $35 a barrel, sustained, would affect first the Asian economies. That would be worrisome to us."
OPEC ministers agreed to boost crude oil production again in a matter of weeks if the new increase of 800,000 barrels a day fails to bring down prices when it takes effect Oct. 1, the organization's secretary-general said Monday.
"We retain the option of putting more oil into the market should the market require it," Nigeria's Rilwanu Lukman told reporters at the cartel's Vienna headquarters.