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Diesel prices hit a record high

No sign rising costs will stop, analysts say

By Victor Velek
Staff Writer, The Prague Post
November 21st, 2007 issue

A combination of factors is driving oil prices to record highs worldwide: speculators, the weak U.S. dollar, high demand and tensions between Turkey and Iraq.
The cost of crude oil recently neared the psychologically important mark of $100 a barrel, pushing the price of both gasoline and diesel up at gas stations.
In the Czech Republic, the price of a liter of diesel has jumped 2.80 Kč (15 U.S. cents) to about 31.80 Kč on average over the past month. This surpasses the price of Natural 95, the country’s top-selling gasoline, which has risen more slowly, according to CCS, a company monitoring fuel prices.
Even though the strengthening crown softened the oil price hike, retail diesel prices hit 31.79 Kč per liter Nov. 19 — a new record in the seven-year history of CCS monitoring. Diesel prices have been rising twice as fast as those of gasoline.
The drastic increase reflects the fact that volatile global oil prices have coincided with some bad news at home, namely the protracted shutdown of the Unipetrol refinery in Litvínov, north Bohemia.
One of the main reasons oil prices have risen is that global demand cannot be quenched, and the Organization of the Petroleum Exporting Countries (OPEC) has been reluctant to increase output, said Pavel Sobíšek, chief economist at UniCredit Bank.
Another reason is that the weak dollar has prompted an increasing number of investors to convert their capital into tangible assets.
“Commodities, including oil, seem to be ideal targets in a time of increased volatility on global markets,” said Next Finance chief economist Vladimír Pikora.
The impact of geopolitical issues such as border tensions between Turkey and Iraq — often mentioned as another cause of the hike — is exaggerated and unfounded, said Česká spořitelna analyst David Navrátil, who attributed the price hike mainly to bullish bets speculators have placed on oil.
Czech retail oil prices, like those of most other European countries, are linked to the Rotterdam oil products market. As there has been sharp growth of diesel prices in Rotterdam, domestic diesel oil prices have soared as well, explained Petr Čermák, analyst at the Colosseum brokerage.
There is also a seasonal influence at play: Winter increases the demand for diesel oil since it is an alternative to heating fuels, Pikora added.
“Moreover, [local] oil prices have been affected by the shutdown of the Litvínov refinery, which caused a fuel shortage,” Čermák said.
Due to an accident, there was a delay in putting the facility back into operation. The refinery resumed operations after a two-month shutdown in mid-November, which should help calm the domestic oil market.
Most analysts predict further price rises.
“We are very close to the $100 mark and even a minor event — frost in North America or a cyclone in the Caribbean — might suffice to break it,” Sobíšek said. Oil may be traded for more than $100 a barrel this year, Pikora added.
While diesel and gasoline retail prices are likely to continue growing in the near future, they’ll rise at a slower pace and with temporary price falls, analysts said.

Victor Velek can be reached at vvelek@praguepost.com


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