Rising Crude Oil Prices Produce Puzzling Shifts for Consumers

By Wald, Mathew L. | THE JOURNAL RECORD, November 6, 1990 | Go to article overview

Rising Crude Oil Prices Produce Puzzling Shifts for Consumers


Wald, Mathew L., THE JOURNAL RECORD


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By Matthew L. Wald The rising tide of oil prices is producing some puzzling swirls. Crude oil is up by about 53 percent since Iraq invaded Kuwait, but gasoline, which comes from crude, is up less than 28 percent. Heating oil is up about 45 percent. Jet fuel is up 78 percent.

And Saddam Hussein's impact on the asphalt market has made this a relatively good time to repave the driveway.

The scattered trajectories of oil prices is only one of the anomalies in the business brought on by the Persian Gulf crisis.

Consumer advocates, for example, are now complaining that the oil giants should have raised gasoline prices more. Their restraint, the argument goes, erased the usual difference between the price of gasoline at the major, ``branded'' outlets and at the independent stations. This squeezed minor competitors severely.

Elected officials denounced all gas price increases, however, and recycled cliches about obscene profits.

At the same time, some companies showed profits that, far from obscene, were modest in the extreme. Some had losses. For the industry as a whole, the third quarter was nearly unchanged from a year earlier.

And the worst may not be behind the industry. Analysts are starting to brood about how the crisis could end without yet another jarring shock, perhaps sending oil to record lows.

At the beginning of July, just before Iraq began threatening Kuwait, the price of a barrel of crude oil in the shortest-available futures contract on the New York Mercantile Exchange was under $17.50. After zigzagging, the market set a record on Oct. 11, closing at $40.42. Ten days later, prices were back in the $20s. The close Friday was $34.

In a broad way, crude oil sets the pace for all petroleum products, but gasoline has risen less than half as much; heating oil is up only about three-quarters as much, and jet fuel has risen nearly 20 percent more.

Oil company executives talk circumspectly about their pricing decisions. But George H. Babikian, president of the ARCO Products Co., explaining a jump in jet fuel prices that has sent airlines into a tailspin, said, ``Our industry, despite what critics say, is almost completely driven by supply and demand.''

With the Pentagon's deployment of troops to the Persian Gulf, he said, ``the government came in here and wanted everything they could get their hands on, and the industry had an obligation to supply it.''

The Saudis are supplying jet fuel in their country, but the planes flying there from this country need fuel, he pointed out, and some oil obtained by the Pentagon here may be swapped for supplies abroad.

The deployment may have pushed demand up by 500,000 barrels a day, above a normal requirement of about 3.5 million barrels a day, industry analysts say.

And the supply is constrained by chemistry. ``There are only so many molecules that qualify as jet fuel in a barrel of crude oil,'' said Michael E. …

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