Why oil prices are stubbornly high
Drivers have been paying about 10 cents more for a gallon of gas since Dec. 31.
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Part of the reason for the decline in inventories: The price of oil for next December on the New York Mercantile Exchange, a futures market, is about $3 a barrel lower than the price of oil today. "It does not pay to hold inventory," says Lucian Pugliaresi, president of Energy Policy Research Foundation Inc. in Washington. "That indicates the market is perceiving the fundamentals of supply and demand will lead to a lower price in the future."Skip to next paragraph
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With inventories relatively low and prices relatively high, some energy traders wonder why the United States is continuing to add to the SPR. Every day, the US adds 90,000 barrels of oil to the underground storage facilities in Louisiana. It stockpiles the oil from the petroleum companies in lieu of collecting taxes from them on oil produced from fields in the Gulf of Mexico.
The SPR is now stocked with 696 million barrels of oil, close to its capacity. "When oil is close to $100 a barrel, it is beyond comprehension why we are still adding to the SPR," says Mr. Kilduff. "It is basically full, and we're adding to it at the top of the market, which is making matters worse."
Iran and Nigeria factors
The oil markets are also trying to assess some geopolitical concerns. For example, energy analysts thought relations between the US and Iran had improved. Then, on Sunday, five Iranian boats confronted a US Navy flotilla in the Strait of Hormuz, according to the Pentagon. President Bush assailed the Iranians for a "provocative" act. "It was just a little incident, but combined with Bush's rhetoric, it revived concerns," says Kilduff.
Analysts had also thought the Nigerian government had been successful in soothing unrest in the oil-producing delta area. "The vice president was from the region, and things appeared to be improving there," says Mueller. "But now, there are some reports that the rebels are planning larger attacks on the oil infrastructure."
Nigeria is the eighth-largest oil producer in the world and an important supplier to the US.