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U.S. gas prices heading back up

An international agency predicts a tightening of crude oil supplies.

July 10, 2007|Ronald D. White | Times Staff Writer

Gasoline prices headed higher after six straight weeks of declines, the Energy Department said Monday, as an international energy watchdog warned of a petroleum squeeze on the horizon.

The International Energy Agency, energy advisor to 26 industrialized countries, cautioned that a crude crunch was on the way because world demand was rising faster than production.

"Despite four years of high oil prices, this report sees increasing market tightness beyond 2010," the Paris-based agency said. Of particular concern, the group said, was the little extra oil-pumping capacity among members of the Organization of the Petroleum Exporting Countries and slow growth in non-OPEC producers such as Russia and Brazil.

The prediction helped lift oil prices in early trading on the New York Mercantile Exchange, but oil ultimately closed off 62 cents at $72.19 a barrel.

The IEA keeps close track of energy problems around the world, noting declines in both OPEC and non-OPEC daily production in May as demand rose. In June, the agency said that violence in the oil-rich Niger Delta of Nigeria had cut OPEC production by 425,000 barrels a day to 30.1 million barrels, adding that rising demand could outstrip increases in OPEC production by the fourth quarter of 2007.

Analysts said the numbers were a symptom of complex problems. There is a worldwide shortage of skilled oil workers such as welders and engineers needed to keep production at high levels, said Antoine Halff, head of energy research at Fimat USA Inc. New oil projects, he said, such as deep ocean drilling efforts and oil sands, present more-expensive technological problems than those in the past.

And at a time when the search for new sources of oil is becoming more challenging, the nationalization of important oil projects in Russia and Venezuela has stripped those countries of top talent, Halff said.

"It has flushed out a lot of expertise. The Russian oil company Yukos has been effectively dismantled. It was the best-performing, fastest-growing, best-managed company in the country, and the same thing has happened in Venezuela," Halff said.

Other analysts said that the IEA might be understating the problem and that the future imbalance in supply and demand might be worse.

"If anything this group has underestimated demand time and time again, and where are you going to get the extra oil? We have major challenges ahead of us," said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago.

But not everyone shared the gloomy IEA assessment, which stretched its predictions to 2012. That was too far out into the future to discount the possibility of production gains, some said. "They are underestimating some suppliers like Saudi Arabia, Kuwait and maybe even Iraq. I just don't think it's as serious as they think," said John Kilduff, vice president of risk management at Man Financial Inc. in New York

Oil supplies in the U.S. remained strong, but that was largely due to refinery problems, which have reduced the immediate demand for crude.

Lately, refinery meltdowns have been concentrated in the central U.S. to such a degree that states such as Nebraska and Michigan had higher pump prices Monday than California, according to the AAA's fuel gauge report. Nationwide, the average price of self-serve regular rose 2.2 cents to $2.981 a gallon, according to the Energy Department's weekly survey. That price was 0.8 of a cent above the average for the same period last year. Six weeks ago, gasoline peaked at 3.218 a gallon.

In California, the average price fell 2.1 cents to 3.136, the Energy Department said. That was 8.8 cents below the year-earlier price. Midwest prices surged 9.1 cents to $3.045, the Gulf Coast was up 0.7 of a cent to $2.858 and the Lower Atlantic states rose half a cent to $2.881.

"California is almost always No. 1 or No. 2 in the country in terms of gas prices, but in a few days, you might not even be in the top 10 out there," said Tom Kloza, chief oil analyst for the Oil Price Information Service in Wall, N.J.

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