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Extra
Oil hits $40, first time since Gulf War
Instability in the Middle East, a red-hot Chinese economy, OPEC policies and other factors are conspiring to keep crude prices high, with no relief for consumers in sight.
By Barbara Lewis, Reuters
Oil prices hit $40 a barrel for the first time in 13 years on Friday on concerns over global supply security, fostering fears that economic growth could suffer.
U.S. light crude hit a high of $40, the highest level since October 1990 after Iraq invaded Kuwait in the crisis that led to the Gulf War. London Brent rose 52 cents to $37.05.
Every dollar increase in the price of crude typically raises the price of gasoline at the pump by 2 to 3 cents a gallon. On Friday, the national average price of regular gasoline was $1.87, according to AAA's daily Fuel Gauge report. That's up from an average of $1.50 a gallon a year ago.
Last weekend's shootings at a Saudi Arabian chemicals plant and attempts a week earlier to bomb Iraq's Basra oil export terminal have fostered fears of a bigger attack on oil facilities in the Middle East, which pumps about a third of the world's oil.
People are watching events in the Middle East very closely. We could be getting toward the point when supplies will be disrupted and that's very worrying, said Tony Machacek of Prudential Bache brokerage.
The United States is calling on the OPEC cartel to calm prices by increasing output. The Bush administration fears the fallout of higher energy costs in an election year.
U.S. Treasury Secretary John Snow said on Thursday that high oil prices were "not helpful for U.S. and global economic growth.
Is OPEC policy driving prices?
The Organization of the Petroleum Exporting Countries, which controls around half of world crude exports, will hold its next scheduled meeting on June 3 in Beirut. OPEC ministers will get the chance to discuss policy options at a forum that gathers producer and consumer nations in Amsterdam on May 22-24.
Rising gas prices -- full coverage on MSN
Several cartel ministers have said they think there is enough crude oil in the market. Algeria's Oil Minister Chakib Khelil said high prices are instead a result of China's red-hot oil demand and political instability in the Middle East.
The reasons that are affecting the world oil market are really beyond OPEC's control, OPEC President Purnomo Yusgiantoro told CNBC television.
U.S. refineries are struggling to meet demand for new environmental grades of gasoline ahead of peak summer holiday driving demand.
U.S. gasoline consumption in the past four weeks rose by 3.4% against the same period last year to 9.1 million barrels a day, leaving stocks of the motor fuel to well below the five-year seasonal average.
The explosive cocktail created by OPEC actions, Saudi oil policy, U.S. managing logistical bottlenecks and U.S. foreign policy are set to keep oil prices on fire this summer, Washington-based PFC Energy said in a research note.
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