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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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