Oil prices hit new high, shake Wall St.

Hurricanes, Nigeria unrest, U.S. supply are culprits; costly diesel threatens truckers

September 28, 2004

BY JEWEL GOPWANI
FREE PRESS BUSINESS WRITER

Hurricanes lashing the Gulf Coast and civil unrest in Nigeria pushed oil prices to record highs Monday, rattling Wall Street and dismaying truckers who saw diesel fuel also surge to an all-time high.

Oil continued its surge toward $50 a barrel, ending the trading day up 76 cents, or 1.6 percent, at $49.64 on the New York Mercantile Exchange. That's 76 percent higher than this time last year.

Worried about soaring energy prices' effects on the economy and corporate profits, investors drove the Dow Jones Industrial Average down 58.70 points to close at 9,988.54. It was the first time the Dow closed below 10,000 since Aug. 17.

Michigan gas prices climbed to $1.94 a gallon, according to a new survey of 2,800 filling stations by AAA Michigan. That was 4 cents a gallon higher than last week, and a new September record.

Diesel rose to a new national record of $2.01 a gallon, according to the U.S. Department of Energy. Though diesel was slightly less expensive in Michigan, at $1.98 a gallon, the spirits of local truckers trying to make ends meet were hardly raised.

The problem they face is that the demand for diesel fuel is growing about 6 percent a year, compared with the demand for gasoline, which is growing by less than 2 percent, said Ben Brockwell, director of pricing and information services at Oil Price Information Service, based in Lakewood, N.J.

"Simply stated, it's good old-fashioned supply economics. Demand is increasing at a faster rate than supply is expanding," Brockwell said, citing major growth for diesel fuel in Asian countries.

That has meant higher costs for truck drivers and trucking companies and fuel surcharges for their clients, said Larry Vergeldt, vice president of marketing for Romulus-based Geo. F. Alger Co., which employs 50 drivers. Those fuel surcharges, implemented in the last year, only cover about 40 percent of costs.

Those drivers, including 51-year-old Marc Kalis of Howell, are like many who own their own trucks and work for companies on a commission. They pay for fuel and their companies reimburse a portion of that cost through a fuel surcharge.

"It's not enough to remotely come close to covering the spike in the fuel price itself," said Kalis, who owns one truck with three flatbed trailers.

Last year, Kalis paid $24,000 for fuel, which was less than his net income on the year.

This year, he said he's on track to spend about $35,000-$40,000 on fuel.

Kalis said he plans to retire in two years. But other drivers who own their own trucks aren't so lucky.

"A lot of these guys have just parked their trucks. They just can't afford these fuel prices," said Walter Heinritzi, executive director of the Michigan Trucking Association.

Craig Johnston, operations manager for REI Inc. in Romeo, said his firm lost three drivers last month because diesel became too costly.

The outlook isn't good.

Brockwell said one news event after another has made the world's oil costlier.

Over the past two weeks, the nation's supply of crude fell by 16.1 million barrels because of hurricane-related disruptions to oil production and shipping, according to the Energy Department.

Oil inventories typically grow at this time of year as demand for gasoline tapers off and refineries shut down for brief maintenance periods.

When the government's weekly petroleum supply report comes out Wednesday, analysts expect to see sharp declines in the nation's inventory of oil for the third straight week.

Last week, the Department of Energy announced plans to dip into the nation's Strategic Petroleum Reserve to ease the shortage in crude oil supplies caused by the hurricanes.

In Nigeria, Royal Dutch/Shell Group has yet to return staff members evacuated last week from two pumping stations because of concern about clashes between government troops and armed militants, a spokesman said.

Shell, the largest foreign oil producer in Nigeria, used helicopters and boats last week to evacuate 235 nonessential personnel at Soku and Ekulama, close to the city of Port Harcourt in the Niger River delta.

Shell hasn't advised the national oil company, the Nigeria National Petroleum Co., of any output loss, an official said. Nigeria produced 2.4 million barrels a day of crude in August.

New York crude oil averaged less than $20 a barrel through the 1990s.

Prices dropped as low as $10.72 in December 1998 when OPEC flooded the market while demand fell.

Oil has been climbing since then, with the only significant interruption coming after the Sept. 11, 2001, terrorist attacks cut demand.

Contact JEWEL GOPWANI at 313-223-4550 or gopwani@freepress.com. The Associated Press and Bloomberg News contributed to this report.