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World events push up prices of oil, gas up

by David R. Bak­er

San Fran­cis­co Chron­i­cle

Benazir Bhut­to’s assas­si­na­tion and fight­ing in north­ern Iraq might soon have a direct effect on your wal­let.

Both have helped push oil prices back up to near-record highs this week, reach­ing more than $96 per bar­rel. And gaso­line prices are fol­low­ing suit, ris­ing in the last few days after a month of declines.

The nation­al aver­age for a gal­lon of reg­u­lar hit $3 again Fri­day, up 2 cents overnight, accord­ing to AAA. Cal­i­for­ni­a’s aver­age hit $3.28, up 1 cent from Thurs­day.

San Fran­cis­co dri­vers pay $3.46. Oak­land’s aver­age is $3.35; San Jose’s, $3.34.

Nev­er before have gaso­line prices been this high at this time of year. They usu­al­ly drop dur­ing autumn and rise again in spring, which makes the cur­rent price lev­els dis­turb­ing.

Cal­i­for­ni­ans already pay, on aver­age, 63 cents more per gal­lon than they did at this time last year, accord­ing to AAA. A price increase this spring could eas­i­ly top­ple the state’s all-time record of $3.49, set in May. San Fran­cis­co’s record is $3.63.

“The fact that gaso­line is so expen­sive now, when it’s typ­i­cal­ly the low point of the mar­ket, is very trou­bling,” said Sean Comey, spokesman for AAA of North­ern Cal­i­for­nia. “We’re start­ing the year at a very high lev­el.”

The state’s sup­ply of gaso­line isn’t a prob­lem. Accord­ing to the Cal­i­for­nia Ener­gy Com­mis­sion, Cal­i­for­nia refiner­ies have almost 15 per­cent more gaso­line on hand than they did a year ago.

Instead, gas prices are being dri­ven by the mar­ket for crude oil, the raw mate­r­i­al for gaso­line.

In Novem­ber, oil prices on the New York Mer­can­tile Exchange came close to break­ing the $100 mark for the first time. They peaked at $98.18, an all-time record. They slid about $10 after Thanks­giv­ing.

Now they’re climb­ing again. Although the price of crude slipped 51 cents on Fri­day, clos­ing at $96.11 on the mer­can­tile exchange, it was up $2.80 for the week, about 3 per­cent.

Oil prices are ris­ing for the same basic rea­sons that pushed them into the $90 range the first time around.

Tur­moil in the Mid­dle East is one. Pak­istan isn’t a big oil pro­duc­er, but the pos­si­bil­i­ty that Bhut­to’s death could fur­ther desta­bi­lize such an impor­tant coun­try in the region gave oil traders a rea­son to bet that prices would rise fur­ther. Last week, Turkey’s mil­i­tary cam­paign against Kur­dish rebels inside north­ern Iraq had a sim­i­lar effect.

“Recent events in the Mid­dle East seem to have ginned up anx­i­ety in the mar­kets, and even though it has­n’t affect­ed sup­ply, it’s worse this week than last week,” Comey said.

But more impor­tant­ly, the world­wide bal­ance between oil sup­ply and demand remains tight. Chi­na’s con­sump­tion con­tin­ues to grow at a rapid clip. So does the Mid­dle East­’s.

Clos­er to home, gaso­line demand in most of the Unit­ed States is still ris­ing, despite high prices.

“It’s not grow­ing at a tremen­dous rate — it’s less than 1 per­cent — but it’s still grow­ing,” said John Kingston, who directs oil cov­er­age for the Platts ener­gy infor­ma­tion ser­vice.

The excep­tion is Cal­i­for­nia, where state tax data have shown gaso­line sales slip­ping dur­ing most of the year.

Kingston said sup­ply and demand con­cerns will keep oil prices high going into the new year. Ear­li­er this month, the sta­tis­tics branch of the Depart­ment of Ener­gy pre­dict­ed that oil prices in 2008 will aver­age more than $84 per bar­rel. That bodes ill for gaso­line prices, which the Ener­gy Depart­ment pre­dict­ed would aver­age $3.11 nation­wide.

Kingston said oil will break the $100 bar­ri­er soon­er or lat­er.

“I think we all know that we’re going to get there,” he said. “It’s just a ques­tion of when.”


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