Crude Prices Rise for Seventh Consecutive Session; Hit $22.34
Contracts for August delivery of West Texas Intermediate, the U.S. benchmark crude, moved as high as $22.76 a 42-gallon barrel before closing at $22.34, up 19 cents from Wednesday's close.
Drivers could be paying more for gasoline, inflation could move up a few notches and the depressed oil industry may get a shot in the arm if oil prices sustain their new lofty levels, analysts said.
Escalating tension in the Persian Gulf and strong gasoline demand have been cited as reasons for the first move above $22 a barrel in 18 months.
However, independent producers in Dallas said they won't be racing out to drill new wells just because the price of oil finally topped $22 a barrel.
But the latest price surge has prompted some quiet celebrating in the Permian Basin, the heartland of Texas oil.
``It should increase the drilling activity. I don't anticipate that it will increase it drastically,'' said Rey Perkins, vice president of Enstar Energy Inc. of Dallas, which hasn't drilled a well in two years.
``A profit can be made at $20 to $21 oil. You've got to realize that with all the taxes, etc., it costs $18 to produce a barrel of oil,'' said Harry Spannaus, executive vice president of the Permian Basin Petroleum Association in Odessa.
``A lot of rigs once active are now scrapped, sold for parts or stacked up in yards and rusting away,'' said Perkins. ``There is a lag time involved in getting those rigs back in operation.''
But he said investors, who once were able to get investment tax credits in exploration and write off much of the cost of a dry hole, no longer have an attractive shelter.
``There goes the investment capital for drilling and exploration,'' he said. ``The number of drilling rigs active in the continental U.S. is down considerably from what it used to be.''
On Wednesday, contracts for August West Texas Intermediate had jumped 57 cents a barrel on the exchange, following reports of an attack by Iraqi warplanes on an Iranian offshore oilfield in the Persian Gulf.
Analysts said the chances of oil prices hanging on to the high levels depend largely on what happens in the war-torn gulf.
The Reagan administration indicated Thursday that it will proceed with its plans to reflag and protect Kuwaiti oil tankers starting next week, after congressional opponents dropped their attempt to delay the plan.
About 14 percent of the oil imported by the United States in the first quarter passes through the gulf, according to the American Petroleum Institute, an industry trade group.
``The Persian Gulf is going to stay hot,'' said Gordon Pye, an economist for Irving Trust Co. ``That's going to be a continued spur to higher (oil) prices. …