PETROLEUM Oil prices rise despite Saudi Arabia's pledge to pump more

High oil prices are bad news for the economy and have become a campaign issue.
CHICAGO TRIBUNE
WASHINGTON -- When Saudi Arabia announced last week that it stood ready to pump 1.3 million more barrels of oil a day to stabilize the price of the world's "black gold," something unusual happened.
The price of oil soared to a record high anyway.
The inability of the world's largest oil producer to sway the petroleum market sent an ominous message to consumers everywhere: Oil prices likely will remain high for the foreseeable future, exacting a heavy toll on the economy.
Some analysts say oil could hit $50 a barrel. Others believe that an even higher price is in the offing if demand and world political developments break the wrong way.
Still others say prices could tail off a bit after the summer driving season comes to a close, though oil would remain costly by historical standards.
But this much is certain: As the price of oil goes, so goes the American economy -- and American jobs.
Uncertainty
The Federal Reserve attributed this summer's economic slowdown to higher petroleum prices. By predicting the economy would improve, the central bank implied that oil prices would soften in the near future.
But this forecast now appears highly uncertain, energy experts say. With demand for oil rising faster than supply and the refining capacity of gasoline stretched virtually to the limit, few have confidence that petroleum prices will return to normal anytime soon.
The oil market is in the throes of powerful new forces. Global consumption has surged with the rapid growth in industrializing countries such as China and India and a stronger world economy in general.
Analysts say the world's refineries are operating at or near capacity, so even if more oil is drilled, it cannot be quickly processed.
And the supply-demand situation is so tight that even a small disruption in critical producing countries such as Venezuela, Iraq and Russia could force prices up further.
Campaign issue
The price of oil also has become a campaign issue, with President Bush more vulnerable because of the potential harm it has on the economy.
The president has an energy policy that emphasizes increasing supply. Democratic candidate John Kerry, meanwhile, has stressed increasing energy conservation, investing in alternative fuels and creating tax incentives to help automakers produce more fuel-efficient cars.
The ho-hum reaction to the Saudi announcement is a dramatic change from the days when the oil-rich kingdom, as a so-called swing producer, could bring down the petroleum price quickly.
Jay Saunders, oil analyst at Deutsche Bank, said Saudi Arabia's production announcement had little impact in part because the extra Saudi oil likely would be high in sulfur and not many old refineries could easily make it into gasoline.
In 2003, the price of crude oil averaged more than $27 a barrel, but it has spiked this year.
On Thursday, it hit a record price of $45.50 a barrel. Gasoline prices, once in the $1.50 per gallon range, have topped $2 a gallon in many parts of the country.