$4 a gallon could seem cheap, analysts say
Analysis looks for $6.64 if crude reaches $200
By KRISTEN HAYS
Copyright 2008 Houston Chronicle
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<!-- rbox ends here --><!-- A resource box here -->If oil reaches $200 a barrel as some analysts have said it could, forget $4-per-gallon gasoline. Think $6.64, according to a Rice University analysis of the link between prices of crude and gasoline.
Amy Myers Jaffe, an energy fellow at Rice's James A. Baker III Institute of Public Policy, displayed a list of crude and correlating gasoline prices Tuesday before a BP economist presented the company's annual statistical review.
Another energy fellow at the institute, Kenneth Medlock, conducted the analysis that correlates oil prices with average gasoline prices. It says the retail price of gasoline includes the cost of crude, distribution and marketing and the gas station operator costs, such as labor and rent.
When crude is at $10 a barrel, regular gasoline averages 92 cents a gallon, according to the analysis. At $70 a barrel, gasoline is $2.73; and at $100 a barrel, it shoots to $3.63.
Regular gasoline averaged $3.91 a gallon in Houston Tuesday, AAA reported, and $4.07 nationwide. Light, sweet crude for August delivery closed at $137 a barrel on the New York Mercantile Exchange
"The price of crude oil is the single most important factor in determining the price of gasoline," the analysis said.
It noted that other factors can move gasoline prices independent of crude, including low gasoline inventories, reduced refinery runs, import disruptions or surges in demand. But overall, gasoline prices rise when crude rises because the refiner's wholesale price for gasoline is linked to the crude price, and the retail price the consumer pays is linked to that wholesale price.
Mark Finley, BP America's general manager of global energy markets who oversees the company's statistical review, said crude's recent milestones include its longest runup ever.
"It's the first time in the history of the oil industry that prices have gone up for six years in a row," Finley said Tuesday.
History repeating
The unprecedented spike — which has pushed the national average price for gasoline over $4 a gallon — has generated comparisons to the oil shocks of the 1970s. Jaffe said that while those price shocks hit almost overnight after the Arab oil embargo, the current runup "is just sort of creeping up on us slowly."
That has prompted many analysts to blame part of the spike on speculators, or large institutional investors and hedge funds that pour money into commodities as a hedge to inflation or on the expectation that prices will keep rising. Lawmakers also have initiated hearings on such speculation.
But Finley, who specializes in statistics, said his team hasn't found speculation to be responsible.
"It's an ambiguous picture," he acknowledged, but he believes the spike is explained by supply and demand, and changing perceptions of these economic fundamentals. Speculation is a symptom that adds to the upward pressure, rather than a cause, he said.
Speculation?
The Organization of the Petroleum Exporting Countries has repeatedly blamed speculation for prices it says are unsupported by tight supply and high demand. OPEC President Chakib Khelil reiterated that view Sunday when representatives from oil-producing and consuming nations worldwide met in Saudi Arabia to discuss prices.
Saudi Arabian Oil Minister Ali al-Naimi said at that meeting that the world's largest oil exporter will hike production in July by 200,000 barrels from current levels.
In a note to investors Tuesday, Barclays Capital echoed Finley's sentiments on supply and demand concerns driving the increases rather than speculation.
"We firmly believe that tightness in oil market fundamentals underpin current prices," the report said. "Gasoline prices have now appreciated close to 34 percent since the start of 2008."
kristen.hays@chron.com
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Analysis looks for $6.64 if crude reaches $200
By KRISTEN HAYS
Copyright 2008 Houston Chronicle
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<!-- rbox ends here --><!-- A resource box here -->If oil reaches $200 a barrel as some analysts have said it could, forget $4-per-gallon gasoline. Think $6.64, according to a Rice University analysis of the link between prices of crude and gasoline.
Amy Myers Jaffe, an energy fellow at Rice's James A. Baker III Institute of Public Policy, displayed a list of crude and correlating gasoline prices Tuesday before a BP economist presented the company's annual statistical review.
Another energy fellow at the institute, Kenneth Medlock, conducted the analysis that correlates oil prices with average gasoline prices. It says the retail price of gasoline includes the cost of crude, distribution and marketing and the gas station operator costs, such as labor and rent.
When crude is at $10 a barrel, regular gasoline averages 92 cents a gallon, according to the analysis. At $70 a barrel, gasoline is $2.73; and at $100 a barrel, it shoots to $3.63.
Regular gasoline averaged $3.91 a gallon in Houston Tuesday, AAA reported, and $4.07 nationwide. Light, sweet crude for August delivery closed at $137 a barrel on the New York Mercantile Exchange
"The price of crude oil is the single most important factor in determining the price of gasoline," the analysis said.
It noted that other factors can move gasoline prices independent of crude, including low gasoline inventories, reduced refinery runs, import disruptions or surges in demand. But overall, gasoline prices rise when crude rises because the refiner's wholesale price for gasoline is linked to the crude price, and the retail price the consumer pays is linked to that wholesale price.
Mark Finley, BP America's general manager of global energy markets who oversees the company's statistical review, said crude's recent milestones include its longest runup ever.
"It's the first time in the history of the oil industry that prices have gone up for six years in a row," Finley said Tuesday.
History repeating
The unprecedented spike — which has pushed the national average price for gasoline over $4 a gallon — has generated comparisons to the oil shocks of the 1970s. Jaffe said that while those price shocks hit almost overnight after the Arab oil embargo, the current runup "is just sort of creeping up on us slowly."
That has prompted many analysts to blame part of the spike on speculators, or large institutional investors and hedge funds that pour money into commodities as a hedge to inflation or on the expectation that prices will keep rising. Lawmakers also have initiated hearings on such speculation.
But Finley, who specializes in statistics, said his team hasn't found speculation to be responsible.
"It's an ambiguous picture," he acknowledged, but he believes the spike is explained by supply and demand, and changing perceptions of these economic fundamentals. Speculation is a symptom that adds to the upward pressure, rather than a cause, he said.
Speculation?
The Organization of the Petroleum Exporting Countries has repeatedly blamed speculation for prices it says are unsupported by tight supply and high demand. OPEC President Chakib Khelil reiterated that view Sunday when representatives from oil-producing and consuming nations worldwide met in Saudi Arabia to discuss prices.
Saudi Arabian Oil Minister Ali al-Naimi said at that meeting that the world's largest oil exporter will hike production in July by 200,000 barrels from current levels.
In a note to investors Tuesday, Barclays Capital echoed Finley's sentiments on supply and demand concerns driving the increases rather than speculation.
"We firmly believe that tightness in oil market fundamentals underpin current prices," the report said. "Gasoline prices have now appreciated close to 34 percent since the start of 2008."
kristen.hays@chron.com
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