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Supply Fears Fuel Second Day of Oil Price Increases

Posted on: Wednesday, 3 May 2006, 06:00 CDT

By Barbara Hagenbaugh

WASHINGTON -- Oil prices jumped Tuesday, coming within $1 of the all-time high, as global tensions continued to make investors anxious about energy supplies.

The price of a barrel of crude oil trading in New York was $74.61 Tuesday, up 91 cents from Monday. The increase Tuesday marked the second-consecutive day of gains. In the two days combined, oil prices have increased $2.73, or 3.8%, this week, nearly offsetting declines seen last week.

The record oil price, not adjusted for inflation, was $75.17 April 21.

Prices have increased this week as investors continue to worry about supplies from key producers. One of the biggest issues stems from concerns that sanctions could be imposed on Iran, OPEC's second-largest producer, in response to the nation's nuclear program.

Although the USA does not import oil from Iran, sanctions would mean less oil on the world market, making what is already a tight supply-demand balance even tighter.

Also affecting oil prices is continued unrest in key oil producer Nigeria. And Monday, the Bolivian president ordered soldiers to occupy the country's natural-gas fields.

Although not directly related to oil, that was another example of uncertainty related to global energy supplies.

"We're one headline away from being at 80 bucks," Alaron Trading oil analyst Phil Flynn says. "That's the problem with this market. You can't get a break."

For gasoline, the run-up in oil prices this week is likely not a good sign. Oil accounts for about half of the cost of gasoline.

Gasoline prices posted a small increase Tuesday after inching down each of the prior three days.

The nationwide average price of a gallon of regular gasoline was $2.920, up from $2.919 Monday and 35 cents higher than a month ago, according to motorist club AAA.

High oil prices will likely lead to further increases in gasoline costs, Global Insight managing director Kevin Lindemer says: "These are not short-term issues. They are very clearly things that are going to be with us through the summer."

(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.

Source: USA TODAY

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