posted on April 13, 2004 10:56:44 AM new
US Treasury secretary John Snow spelled out the growing US concern about rising energy prices on Monday, describing production cuts by the Organisation of Petroleum Exporting Countries as "most unwelcome".
Gasoline, futures hit an all-time high in New York after the International Energy Agency raised its forecast for global oil demand for the sixth month in a row.
Asked on radio about rising petrol prices, Mr Snow said: "We are very concerned and the actions by Opec in reducing its quota are most unwelcome. We have let Opec know that we don't think well of these actions. The situation is a serious one."
Crude oil futures for May delivery rose 70 cents to $37.84 a barrel at the close on the New York Mercantile Exchange, off a peak of $37.95.
Gasoline for May delivery reached $1.1790 a gallon, up 2.8 cents from Thursday. Prices at the pump were just over $1.82 per gallon and are expected to reach $2 this summer.
The IEA raised its demand projections on Friday, cautioning that the annual spring slowdown in demand would be smaller than usual. The Paris-based energy advisory group raised its second-quarter estimate of demand by 270,000 barrels a day to 78.3m b/d, 2.2m b/d more than the same quarter in the previous year.
"The IEA is finally getting closer to reality - they've been under-forecasting demand for a long time," said Gary Ross, chief executive of energy consultancy PIRA Energy Group. He added, however: "They are still below the mark." Indeed, traders said the market's strong price move had more to do with expectations that demand estimates would be revised higher again.
"Every reporting agency continues to say, 'we've missed the mark on demand expectations,' " said Phil Flynn, senior market analyst at Alaron Trading in Chicago. "The speculators are betting on more revisions, and they have been right all along."
Mr Flynn and other industry analysts said they expected the price of crude to hit $40 a barrel.
Last month Opec agreed a 1m b/d cut in production to counter the effects of any spring slowdown. But anecdotal reports suggest the high prices are tempting leading exporters to produce over their quotas.
Increased supply has been far outstripped by surging demand, especially in China. A report by the official Chinese news agency showed that imports rose 35.7 per cent year-on-year in the first quarter. Meanwhile, concerns about instability in key oil-producing nations such as Iraq and Venezuela are boosting prices.
The spectre of surging prices at the petrol pumps has raised some alarms about the effect on the US economy. But Mr Ross said demand would remain robust, adding that no American drivers would refrain from taking a 500-mile vacation because "it costs an extra $7.50 at the gas pump".
The $7.50 is not the real cost, it is the aggregate cost of gas going from $1 a gallon or less to $3.
