Recent Chicago gas jump is double nation's rate

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More specials OIL PRICE PRESSURE RISING DESPITE OPEC PROMISE RECENT CHICAGO JUMP IS DOUBLE NATION'S

By James P. Miller, Tribune Staff Writer. Tribune news services contributed to this report. September 12, 2000 Gasoline prices in the Chicago area jumped at almost twice the nationwide rate in recent weeks, according to an industry expert. And despite OPEC's weekend promise to boost crude-oil production, market activity on Monday suggested that fuel prices are poised to continue the upward trend.

The price of a gallon of unleaded regular gas in the metro area was $1.60 on Friday, up from $1.47 on Aug. 25, according to Trilby Lundberg, publisher of the Lundberg Survey. That's "one of the greatest rises we saw in that period," said Lundberg, whose Camarillo, Calif., company conducts a biweekly survey of more than 10,000 service stations around the country.

Nationwide, the average price of unleaded regular rose a more modest 6.8 cents in the same period, to $1.57. Despite the rising prices, most service station owners are not enjoying a windfall, Lundberg said. The average dealer profit margin on self-serve regular hit a 15-month low of just over 4 cents a gallon, according to the report.

The Chicago area, Lundberg noted in an interview, has "behaved with more volatility" in comparison with the rest of the nation ever since early June, when local gas supplies ran short following changes in federal anti-smog refining requirements. After the "craziness" of the June runup, which took prices to a high of $2.13, Lundberg said, some of the volatility has remained. Chicago-area gas prices fell more markedly than those of other regions during the summer, and now local prices are advancing more rapidly than in most other regions.

Because Lundberg's survey of retail prices includes taxes, the downturn in Chicago-area prices since the June peak reflects the temporary suspension of the state's 5 percent gasoline tax July 1, which had the effect of reducing gas prices.

The outlook for relief anytime soon seems bleak. On Sunday, the Organization of Petroleum Exporting Countries announced that it would increase daily crude oil production by about 800,000 barrels, or 3 percent, within a few weeks. OPEC's move was designed to bring down oil prices, and thus defuse a swelling chorus of complaints from industrialized nations in Asia, Europe and North America.

But experts say even this increase in production is inadequate to dampen prices. And in the U.S. and many other industrialized countries, officials are concerned that higher energy prices could ignite an inflationary price spiral that will sap economic growth.

Oil prices staged a retreat on Friday, in advance of OPEC's scheduled meeting in Vienna. But on Monday, it became clear that OPEC's vow to pump more crude had failed either to drive down prices or allay concerns about future availability. The price of benchmark West Texas Intermediate crude oil climbed on the New York Mercantile Exchange to more than $35 a barrel, just below its highest level since the gulf war of 1990.

The market has declared "in a loud voice," said IFR Pegasus analyst Tim Evans, "that the OPEC production increases aren't enough oil soon enough to cap this market."

Why the surge in prices? For one thing, the global supply is simply being stretched thin. With many economies around the globe operating simultaneously at historically strong levels, demand has been running very high for petroleum products to run factories, fuel transportation and serve as a raw material. Prior to the increase announced Sunday, OPEC had already boosted daily output by close to 3 million barrels so far this year, but the higher production was easily sopped up.

In the U.S., refiners have been hustling to satisfy strong demand for gasoline; as a result, the nation is heading toward winter with heating oil supplies substantially lower than normal. Oil is used for heating primarily in the Eastern U.S., but the bidding for crude oil to bolster those inventories is putting upward pressure on prices around the globe, from Australia to France.

http://www.chicagotribune.com/business/printedition/article/0,2669,SAV-0009120415,FF.html

-- Martin Thompson (mthom1927@aol.com), September 12, 2000


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