World oil and gasoline prices hit record highs

Calgary, August, 2005: World oil and gasoline prices hit record highs in August. In some Canadian markets gasoline breached the $1-per-litre barrier before mid-month, while in others retailers absorbed cost increases to remain below the $1 mark.

Oil prices approached the $70-US-per-barrel mark but failed to dampen consumer demand or to boost crude production from nations outside the Organization of Petroleum Exporting Countries.

World oil consumption has risen in recent months at rates not seen since the early 1980s, led by Asia/Pacific demand. Economic transformation in China has seen oil consumption there double in a decade to more than six million barrels per day, making China the world's second leading consumer after the United States. Still, Chinese consumption per person is less than 10 per cent of North American levels, leading analysts to predict continued demand growth as China modernizes.

Other oil-price pressures cited by analysts included production problems in the North Sea and Nigeria, political issues in Iran and Saudi Arabia, hurricane season in the Gulf of Mexico and increased speculative oil trading. All these forces have maintained oil prices at an average $53 US per barrel for the year to date, easily surpassing the record $41.49 posted for all of 2004. According to the BP Statistical Review of World Energy, the previous record annualized oil price was $36.08, set in 1980.

Amid ongoing concerns for U.S. energy security, plans were announced for Vice President Dick Cheney to visit the Alberta oilsands in September to assess output potential from reserves estimated to exceed those of Saudi Arabia.

Rising crude prices washed into North American gasoline markets that also struggled with their own production issues. While there were no unplanned shutdowns and no major maintenance activities at Canadian refineries, no less than 14 U.S. plants were hit by various unplanned production interruptions during July and August. Some of these upsets were small but various units at BP's giant 460,000-bpd Texas City refinery were shut down for a protracted period, after an initial explosion in March killed 15 workers and injured 170. Partly as a result of refinery upsets, U.S. gasoline reserves declined five weeks in a row. Meanwhile, the same tropical storms that menaced oil production and imports in the Gulf of Mexico also threatened refinery capacity arrayed along the Gulf Coast.

© Canadian Centre for Energy Information. Prepared for the August 2005 News Update at www.centreforenergy.com by Calgary-based energy reporter Brian Burton.