Cleaner-fuel rules could boost oil prices in Cleaner-fuel rules could boost oil prices in '06
High global demand expected to persist; crude ends year above $61
High global demand expected to persist; crude ends year above $61
Oil prices charged to a record in 2005 and could rise even higher in 2006 as the United States implements clean fuel rules and world energy demand remains strong, experts said Friday.
The outlook means more headaches for businesses already squeezed by soaring energy bills, and consumers who have been forced to pay up for gasoline and winter heating fuel.
Oil reached highs of nearly $71 a barrel in August from $43 at the beginning of the year after a wave of hurricanes slammed Gulf Coast oil and gas infrastructure, cutting a quarter of the nation’s fuel production.
Prices have since receded as the industry made strides in its recovery, but crude rose 72 cents Friday to end the year at $61.04 a barrel on the New York Mercantile Exchange. And the new year may bring new price-supporting supply constraints, experts said.
Tougher federal sulfur requirements for gasoline and diesel could cut supplies as refiners shut plants to revamp units, and foreign suppliers find other markets with less stringent regulations, slashing U.S. imports.
“Refiners are already going to be feeling a bit of a pinch in their ability to provide supply, and importers as well,” Jamal Qureshi, analyst at PFC in Washington said. Refiners must reduce sulfur content in gasoline starting Jan. 1, according to new regulations from the Environmental Protection Agency, while ultra-low sulfur diesel requirements will begin to be phased in from June.
Both will help drive up prices, experts warn. A recent Reuters poll of analysts predicted oil will average $57.34 a barrel next year, up a bit from about $57 in 2005.
Despite expectations of tighter supply and high prices, experts say demand growth will remain resilient. Analysts had feared the 2005 price surge could dampen buying, especially in the Asian and U.S. markets.
“A lot of factors that existed in 2005 will continue in 2006. We expect to see demand stay relatively strong,” said Joanne Shore, analyst at the U.S. Energy Information Administration.
While some companies have beefed up their refineries in response to high fuel prices, the new capacity is not expected to match rising demand in the world’s largest oil consumer and will continue to support prices, analysts said.
“There have been attempts this year to solve the bottleneck in the refinery part of the energy equation. That is still not resolved,” said Jason Schenker, analyst at Wachovia Bank in Charlotte, N.C.
OPEC, which controls around 40 percent of world crude exports, pumped nearly full out this year to build stocks and help bring prices down from record peaks. But analysts say the group may trim output levels next year to prevent growing inventories from depressing prices, and some OPEC members have signaled they want to lower production limits at its Jan. 31 meeting.
“OPEC is going to have to go back to some supply management again if they are going to hold a (price) floor. It should be easy for them to manage, it’s not like they have to cut a lot they will still be at high output levels,” PFC’s Jamal said.