Should the turmoil in Libya last for more than a few weeks, oil experts predict that European refiners will be forced to buy sweet crude from Algeria and Nigeria, two principal sources of sweet crude for the United States. That would probably push up American gasoline prices, which have already risen 6 cents a gallon over the last week to an average of $3.19 for regular grade.
“It will force all sweet crude refiners into a bidding war,” said Lawrence J. Goldstein, a director at the Energy Policy Research Foundation, an organization partly financed by the oil industry. “Quality matters more than quantity.”
Sweet crude is particularly well suited for producing diesel fuel, which is far more popular as a transportation fuel in Europe than in the United States. Sour crudes are more expensive to refine, but American refineries are typically outfitted with equipment to refine them because so much oil imported to the United States comes from Latin America, where many oil reserves are sour.
The last time there was a shortage of sweet crude, in 2007 and early 2008, oil prices surged to more than $140 a barrel, although that shortage was caused mostly by spiraling demand and not a sudden cut in supply.
The price of the benchmark American oil, West Texas Intermediate, briefly touched $100 on Wednesday before settling at $98.10 in New York trading, up $2.68 from Tuesday. In London, the benchmark Brent crude rose $5.47, to $111.25.
A gauge of jet fuel prices, known as Gulf Coast jet fuel, soared 10.7 cents, to $2.99 a gallon in the spot market on Wednesday, putting pressure on airlines to raise fares. Meanwhile, diesel prices have risen 4 cents in the last week, to $3.57 a gallon, the highest level since October 2008.
Michael Lynch, president of Strategic Energy and Economic Research, a consultancy firm, said the Brent benchmark was headed for $120 a barrel while West Texas Intermediate would reach $110 “in the near term.”
That could easily push the national average price for a gallon of regular gasoline to $3.50, which economists say would cut into consumer discretionary spending, like dining out. Typically, every one-cent increase in the pump price of gasoline takes more than $1 billion out of consumer pockets over a year. |
