Oil Prices Rise due to World Oil Shortage
Oil prices spike on supply concerns
Barrel of crude tops $38 U.S.
Inflation stays tame in February

WASHINGTON—Crude oil prices rose yesterday to their highest level since the Persian Gulf War in 1990 after release of a report that showed U.S. gasoline inventories fell last week as demand increased.

Crude oil for April delivery rose 70 cents (U.S.), or 1.9 per cent, to settle at $38.18 a barrel on the New York Mercantile Exchange, the highest settlement price since Oct. 16, 1990, when Iraqi troops were occupying Kuwait.

Gasoline for April delivery rose 3.13 cents, or 2.8 per cent, to settle at $1.1577 in New York, the highest close since May 23, 2001. Prices rose as high as $1.163.

The U.S. energy department reported that gasoline supplies fell 800,000 barrels to 199.6 million barrels in the week ended March 12. The decline left stockpiles at the lowest since late November. Demand rose to 9 million barrels a day, the highest since the week ended Dec. 19. Gasoline demand climbs to an annual peak during the warm-weather months.

"Demand just keeps growing in spite of high prices," said Phil Flynn, senior energy trader for Alaron Trading Corp. in Chicago. "This is setting us up for a very bad summer driving season."

Economists say rising energy prices pose a threat to growth, rather than heralding a surge in inflation.

"... It's a danger signal to the discretionary spending power of consumers because it eats into income," said Elisabeth Denison, an economist at Dresdner Kleinwort Wasserstein in New York.

Edward McKelvey, senior economist at Goldman Sachs & Co. in New York, agreed: "When energy prices are increasing, that is always a problem for disposable income. It makes it harder to increase spending on other items."

Indeed, U.S. inflation remains under control.

The labour department issued a report yesterday showing that the consumer price index, the most widely used gauge of U.S. inflation, climbed 0.3 per cent in February, compared with a rise of 0.5 per cent the month before. So-called core CPI, which strips out the volatile components food and energy, advanced 0.2 per cent after rising by the same extent in January.

The 0.3 per cent increase in the CPI matched economists' forecasts. The 0.2 per cent rise in core prices was slightly bigger than the 0.1 per cent increase they were calling for.

Energy prices went up by 1.7 per cent in February, down from the big 4.7 per cent rise reported for January.

The cost of all goods including cars, apparel and food rose 0.5 per cent last month. New car prices rose 0.4 per cent last month, the first rise since August, after falling 0.1 per cent in January, and are down 0.6 per cent in the last 12 months. The cost of clothing fell 0.1 per cent.

"Competition is intense," Paul Ballew, General Motors chief sales analyst, said in a conference call with investors this month. "Other manufacturers have gotten a bit more aggressive. We aren't seeing the competitive pressure lessening in the industry."

General Motors spent $4,428 per vehicle on incentives in February and is spending the most ever by an auto maker this year, according to CNW Marketing Research Inc. Incentive spending was $4,306 at Ford Motor Co. and $4,197 at Chrysler last month. The discounts helped sales improve to a 16.4 million pace for the month from 16.1 million in January.

In a separate report, the labour department said real average earnings decreased by 0.1 per cent in February, compared with January's 0.3 per cent rise.

Economists say the weak job market is curbing wage growth.

Canada's Oil Facts:

  • Oil - production: 2.738 million bbl/day or 997.3 billion bbl/year (2001 est.)
  • Oil - consumption: 1.703 million bbl/day (2001 est.)
  • Oil - exports: 2.008 million bbl/day (2001)
  • Oil - imports: 1.145 million bbl/day (2001)
  • Oil - proved reserves: 5.112 billion bbl (37257)
  • Canada will run out of oil reserves in roughly 4 to 5 years.

    United States Oil Facts:

  • Oil - production: 8.054 million bbl/day or 2.934 billion bbl/year (2001 est.)
  • Oil - consumption: 19.65 million bbl/day (2001 est.)
  • Oil - proved reserves: 22.45 billion bbl (37257)
  • The United States will run out of oil reserves in roughly 4 to 7 years.

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