Big Oil Price Swings Caused by Investors, Report Says

WASHINGTON (Reuters) — Institutional investors caused the rapid rise and fall in crude oil prices in 2008, according to an independent report released by lawmakers on Wednesday. The report, co-authored by the portfolio manager of Masters Capital Management, said from January to May 27 index traders poured $60 billion into commodity markets, causing a big spike in oil prices. When Congress began holding hearings about speculation from May to July, traders pulled $39 billion from the market, the report says. The report was released on Capitol Hill as part of an effort by some members of Congress to crack down on what they believe is excessive speculation in oil markets. Oil hit a record $147 a barrel in July, then started falling until it hit $102 this week.

VIENNA — OPEC oil ministers agreed Wednesday to trim overall output by more than 500,000 barrels a day in a compromise meant to avoid new turmoil in crude markets while seeking to bolster falling prices. The news sparked a modest rebound in oil prices. Yhe decision could have the psychological effect of steadying eroding prices at or above the $100 mark — the red line for many OPEC nations concerned about their rapid loss of revenue in recent months.

Gas/Oil Prices Fall

WASHINGTON — Gasoline prices will likely continue to fall in the next few weeks as lower oil costs and reduced demand push the price at the pump lower. But a steep drop is unlikely. The nationwide average price for a gallon of regular was $3.809 on Monday, the Energy Department said. That was down 7.1 cents from a week ago and 7.4% lower than the peak of $4.114 hit July 7. A separate survey from AAA and the Oil Price Information Service found the average U.S. price was $3.81 Monday. The U.S. average will likely fall another 6 cents to 15 cents in the next few weeks and will be as low as $3.50 in some parts of the country, based on the recent drop in oil prices, OPIS analyst Tom Kloza says.

But prices are unlikely to stage a massive decline. That's in part because many gas station owners lost money in recent months as their costs increased faster than they could raise pump prices. Heavy competition and a desire to maintain sales volume prevented them from keeping up with escalating costs. Now, some of those owners will be trying to recoup those losses as costs fall. While oil prices jumped 40% in three months before peaking in early July, the average price at the pump rose 23%. The cost of oil accounts for nearly three-quarters of the retail price of gasoline.

Rural Gas Woes

Soaring gas prices are a double-whammy for many rural residents: They often pay more than people who live in cities and suburbs because of the expense of hauling fuel to their communities, and they must drive greater distances for life's necessities: work, groceries, medical care and, of course, gas. Meanwhile, incomes typically are lower in rural areas, making increasingly high gas prices an especially urgent concern. Rural households also are more likely to have older, less fuel-efficient vehicles such as pickups, the Federal Highway Administration (FHWA) says. The average age of a vehicle in a rural household: 8.7 years, compared with 7.9 years for an urban vehicle.

Rural residents do more driving, too — an average of 3,100 miles a year more than urban dwellers, the FHWA says. A May survey by the Oil Price Information Service (OPIS), a fuel analysis company, and Wright Express, a company that collects data on credit card transactions, found that people in rural areas spend as much as 16.02% of their monthly family income on gas, while people in urban areas of New York and New Jersey spend as little as 2.05%.

Oil/Gas Prices

Saudi Arabia is willing to produce more oil if customers need it, the kingdom's oil minister said Sunday without citing any specific output increase. Saudi Arabia, the world's largest oil exporter, has been under intense pressure from the U.S. and other oil consumers to increase its crude output to help slow the soaring price of oil. The kingdom already announced modest increases and said it would pump 9.7 million barrels a day beginning in July. But those increases have not done much to stem the skyrocketing price of oil, which closed near $135 a barrel on Friday. The high prices are affecting consumers and economies across the United States, Europe and much of the world. Many countries have experienced social unrest as rising fuel prices have driven significant increases in the cost of food and other basic goods.

Gas/Oil Prices

WASHINGTON (AP) — For a quarter-century, drilling for oil and gas off nearly all the American coastline has been banned in part to protect tourism and to lessen the chances of beach-blackening spills. Then gasoline prices topped $4 a gallon this summer. Drivers and others began clamoring for federal lawmakers to do something about the record price of oil, much of it produced in foreign countries. In response, President Bush is renewing his call to open U.S. coastal waters to oil and gas development, arguing that it's high time to battle high prices with increased domestic production. He is planning to ask Congress on Wednesday to lift the drilling moratoria that have been in effect since 1981 in more than 80% of the country's Outer Continental Shelf and to let states help to decide where to allow drilling. For their part, some lawmakers have their own plan: Legislation that would continue the ban into late 2009 was scheduled to be considered Wednesday by the House Appropriations Committee.

Americans drove 30 billion fewer miles from November through April than during the same period in 2006-07, the biggest such drop since the Iranian revolution led to gasoline supply shortages in 1979-80. The decline in total miles traveled, though only 1%, means that many drivers are cutting back far more because the number of drivers and vehicles grows by 1% to 2% a year. Americans are driving about the same number of miles as in 2005, when the USA had 8 million fewer people, according to a USA TODAY analysis of Federal Highway Administration data. The declines are sharpest on rural roads, indicating that people are cutting back on long-distance and vacation trips.

Gas/Oil Prices Caused by Lack of Investment/Foresight

BRUSSELS (AP) — The chairman of oil giant BP said Wednesday that high oil prices stem from industry's failure to invest enough for surging demand. Oil prices have quadrupled in the last seven years, hitting a record high June 6 when traders paid $139.12 a barrel. Peter Sutherland, BP's chairman, said the high prices were not driven by market speculators or fears that oil is running out but an unexpected increase in demand. "We just didn't predict how fast demand would take off," he said at an event in Brussels organized by the European Policy Centre think tank. "The high price that we have today is caused, in my view, by the inability of the industry to easily supply rising demand, and this isn't because of the lack of available resources but because of inadequate investment in both production and complex refining capacity," he said.

Gas/Oil Prices

NEW YORK (AP) — Drivers are paying an average of $4 for a gallon of gasoline for the first time. AAA and the Oil Price Information Service say the national average price for a gallon of regular gas rose to $4.04 on Tuesday. But consumers in many parts of the country have already been paying well above that price for some time. Gas is expected to keep climbing, putting greater pressure on consumers and businesses, because the price of oil is soaring in futures markets. Light, sweet crude shot up nearly $11 a barrel Friday and approached $140 for the first time. Along with higher fuel costs, consumers are also contending with higher prices for food and other goods because of rising transportation costs.

Gas Price Ramifications

High gas prices are pushing more people onto buses and subways, straining transit agencies trying to meet the demand. Like other consumers, the agencies are also paying more for fuel — 44% more this year than last, according to a survey of 96 transit agencies to be released Friday by the American Public Transportation Association (APTA). That double hit means bus and train operators are raising fares, cutting services and delaying improvements. Almost half of bus operators and more than two-thirds of rail operators have increased fares. About a fifth are cutting service. "The difficulty of high gas prices is that it is a dual-edged sword," association President William Millar says. "It is bringing more ridership. … Unfortunately, transit agencies are huge users of petroleum-based fuel."

Gas Price Fallout

More than a third of Americans are rethinking vacation plans because of record-high gas prices, a USA TODAY/Gallup Poll shows, and some destinations are feeling the squeeze as the summer travel season officially begins this holiday weekend. Of those altering travel plans, 37% are scrapping trips and one in four won't go as far or stay as long, the poll finds. "It's looking very bad. People just aren't coming," says Jackie Gentry, manager of the Seashore Inn in Seaside, Ore. The hotel isn't sold out for Memorial Day weekend, she says, "and we have hardly any reservations for June." The average price of a gallon of gas nationwide is $3.87. Some analysts predict gas will break past $4 as early as next week