By — PBS NewsHour PBS NewsHour Leave your feedback Share Copy URL https://www.pbs.org/newshour/economy/business-jan-june08-oilprices_05-21 Email Facebook Twitter LinkedIn Pinterest Tumblr Share on Facebook Share on Twitter Fuel Prices Reach Records Amid Supply Concerns Economy May 21, 2008 5:05 PM EDT Light, sweet crude for July delivery rose as high as $133.38 a barrel in afternoon trading on the New York Mercantile Exchange. Meanwhile, AAA reported that the average price for a gallon of both unleaded gas and diesel fuel set yet another record Wednesday. The average price of a gallon of gas in the U.S. reached nearly $3.81 – up more than 30 cents from a month ago and 60 cents from a year ago. Prices are already as high as $4 a gallon for gas in many parts of the country, and the number of stations charging $4 or more rises each day. Prices are nearing $5 a gallon in parts of Alaska. “The market is in a very bullish mood and these statistics will do nothing to change that,” Tom Bentz, an analyst at BNP Paribas Commodity Futures Inc., told Reuters. Analysts say crude has been boosted in recent days by especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and certain earthquake-hit regions are relying on diesel generators for power. Supply worries, rising demand and a slumping dollar are conspiring to make filling up the car — and paying for just about everything else — a growing burden for Americans. In response to the record-high fuel prices, American Airlines announced Wednesday that it will begin charging passengers $15 for their first checked bag, cut domestic flights and lay off workers. Its parent company’s shares fell 15 percent after the announcement was made at its annual shareholders meeting. Last month American announced it would join other carriers in charging $25 for second bags checked for some passengers, but it wasn’t immediately clear how Wednesday’s announcement would affect that. Wednesday’s oil price surge came as top executives of the five largest oil companies testified on Capitol Hill and tried to shift anger over high prices to a debate over supply, leading a senator to accuse them of acting like “hapless victims” while racking up record profits. Patrick Leahy, D-Vt., told the executives there’s “a disconnect” between normal supply and demand and the soaring price of oil that the industry has yet to explain, the Associated Press reported. J. Stephen Simon, executive vice president of Exxon Mobil Corp., said profits have been huge “in absolute terms” but must be viewed in the context of the large scale of the industry. He also said high earnings are needed “in the current up cycle” to pay for investments in the long term when profits will be down. “‘Current up cycle,’ that’s a nice term,” Leahy testily replied, “when people can’t afford to go to work” because gasoline is costing close to $4 a gallon. The five companies — ExxonMobil, ConocoPhillips, Chevron, Shell and BP America — earned $36 billion in the first quarter of this year. The executives, appearing before the Senate Judiciary Committee, said they know the burden high prices impose, but said the cause is not company profits but global supply and demand, according to the AP. They also sought to use their appearance before Congress to argue against new taxes on their industry “I urge you to resist these punitive policies,” said vice chairman of Chevron Corp. John Hofmeister. The oil price rally was fed in part by a report from the Energy Department’s Energy Information Administration, which said crude inventories fell by more than 5 million barrels last week. Energy Secretary Samuel Bodman said Wednesday that there was nothing the government could do to ease the pain of soaring fuel prices for consumers and added that a rise in speculative investment in commodities was not behind the rally. “We have flat (oil) production … and increasing demand,” Bodman said. “I don’t think anything can be done near term,” he said. The Organization of the Petroleum Exporting Countries has blamed oil’s spiking costs on speculation and the weak U.S. dollar and has repeatedly rebuffed calls from consumer nations for more supply. OPEC’s biggest producer, Saudi Arabia, said last week it has raised production by 300,000 barrels, but only to offset production problems among other members of the organization. By — PBS NewsHour PBS NewsHour
Light, sweet crude for July delivery rose as high as $133.38 a barrel in afternoon trading on the New York Mercantile Exchange. Meanwhile, AAA reported that the average price for a gallon of both unleaded gas and diesel fuel set yet another record Wednesday. The average price of a gallon of gas in the U.S. reached nearly $3.81 – up more than 30 cents from a month ago and 60 cents from a year ago. Prices are already as high as $4 a gallon for gas in many parts of the country, and the number of stations charging $4 or more rises each day. Prices are nearing $5 a gallon in parts of Alaska. “The market is in a very bullish mood and these statistics will do nothing to change that,” Tom Bentz, an analyst at BNP Paribas Commodity Futures Inc., told Reuters. Analysts say crude has been boosted in recent days by especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and certain earthquake-hit regions are relying on diesel generators for power. Supply worries, rising demand and a slumping dollar are conspiring to make filling up the car — and paying for just about everything else — a growing burden for Americans. In response to the record-high fuel prices, American Airlines announced Wednesday that it will begin charging passengers $15 for their first checked bag, cut domestic flights and lay off workers. Its parent company’s shares fell 15 percent after the announcement was made at its annual shareholders meeting. Last month American announced it would join other carriers in charging $25 for second bags checked for some passengers, but it wasn’t immediately clear how Wednesday’s announcement would affect that. Wednesday’s oil price surge came as top executives of the five largest oil companies testified on Capitol Hill and tried to shift anger over high prices to a debate over supply, leading a senator to accuse them of acting like “hapless victims” while racking up record profits. Patrick Leahy, D-Vt., told the executives there’s “a disconnect” between normal supply and demand and the soaring price of oil that the industry has yet to explain, the Associated Press reported. J. Stephen Simon, executive vice president of Exxon Mobil Corp., said profits have been huge “in absolute terms” but must be viewed in the context of the large scale of the industry. He also said high earnings are needed “in the current up cycle” to pay for investments in the long term when profits will be down. “‘Current up cycle,’ that’s a nice term,” Leahy testily replied, “when people can’t afford to go to work” because gasoline is costing close to $4 a gallon. The five companies — ExxonMobil, ConocoPhillips, Chevron, Shell and BP America — earned $36 billion in the first quarter of this year. The executives, appearing before the Senate Judiciary Committee, said they know the burden high prices impose, but said the cause is not company profits but global supply and demand, according to the AP. They also sought to use their appearance before Congress to argue against new taxes on their industry “I urge you to resist these punitive policies,” said vice chairman of Chevron Corp. John Hofmeister. The oil price rally was fed in part by a report from the Energy Department’s Energy Information Administration, which said crude inventories fell by more than 5 million barrels last week. Energy Secretary Samuel Bodman said Wednesday that there was nothing the government could do to ease the pain of soaring fuel prices for consumers and added that a rise in speculative investment in commodities was not behind the rally. “We have flat (oil) production … and increasing demand,” Bodman said. “I don’t think anything can be done near term,” he said. The Organization of the Petroleum Exporting Countries has blamed oil’s spiking costs on speculation and the weak U.S. dollar and has repeatedly rebuffed calls from consumer nations for more supply. OPEC’s biggest producer, Saudi Arabia, said last week it has raised production by 300,000 barrels, but only to offset production problems among other members of the organization.