Oil Prices Likely to Stay High Next Year

Heating a house, driving a car, and fueling the nation's economy all got more expensive this year. Energy prices reached new highs in 2005, not accounting for inflation, and forecasters say 2006 may not bring much relief.

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If you factor out inflation, energy prices reached new highs in the year that's now ending, and forecasters say 2006 may not bring much relief. This crunch is not limited to the United States. In a moment, we'll hear about an entire country that is under pressure to pay more for natural gas, a lot more. The same pressures are affecting the United States, as NPR's Scott Horsley reports.

SCOTT HORSLEY reporting:

Antoinette Stark(ph) keeps her thermostat at 66 degrees, and her house is well-insulated. But the Longmont, Colorado, woman still got an unpleasant surprise when she opened her most recent natural gas bill. It was $185, about double what she paid last year.

Ms. ANTOINETTE STARK (Colorado): I'm 82 years old, and so my income is under a thousand a month. I scrimp along, and when something like this happens, then you scrimp a little bit more.

HORSLEY: Many people will find themselves scrimping to pay for heat this winter. The Energy Department warns heating costs could jump up to 38 percent from a year ago. Higher fuel prices were made worse in Stark's case by an early December cold snap.

Ms. STARK: It's been like a real bitter, bitter cold. Even at my age, I don't get cold that easy, but I keep a supply, like sweaters and sweatsuits and stuff, around home.

HORSLEY: The seeds of this costly winter were planted, in part, last summer by the hurricanes on the Gulf Coast. Even now, months later, more than 20 percent of the offshore oil and gas production remain shut down. Daniel Yergin of Cambridge Energy Research Associates says that affects a big chunk of the nation's energy supply.

Mr. DANIEL YERGIN (Cambridge Energy Research Associates): When people build offshore platforms, they build them for a hundred-year storm. 2005 was a year that you had not one but two hundred-year storms within a matter of weeks of each other, and the result was one of the biggest energy shocks since the 1970s.

HORSLEY: And the shock came at a time when energy supplies were already stretched thin. Even before the hurricanes, consumers around the world were using oil almost as fast as producers could pump it. And that was pushing prices in one direction: up.

MICHELE NORRIS ("All Things Considered"): The price of oil climbed to a new high today before dropping back a bit in the afternoon.

ROBERT SIEGEL ("All Things Considered"): The price of crude oil set a new record today. It was $58.40...

Unidentified Reporter: Another day, another record for oil prices.

HORSLEY: The worldwide market for oil is coming to look more and more like a busy shopping mall the week before Christmas, and that other car jockeying for the last parking space may have a Chinese driver at the wheel. Yergin says Americans are just now waking up to China's growing appetite for oil, as illustrated by the Chinese company CNOOC's aborted bid for Unocal.

Mr. YERGIN: Ten years ago the thought that would happen in a Chinese oil market could possibly have had an impact on what motorists in America pay at the gasoline pump would have seemed just unrealistic. Today we now see that it's a reality.

HORSLEY: The average price of gasoline topped $2 a gallon back in March, and it hasn't fallen below that level since. That gets expensive for cabdriver Ezer Herdawi(ph), who's waiting for a holiday fare outside the San Diego Airport.

Mr. EZER HERDAWI (Cabdriver): This is like number one on the list, the gas is number one. They hope the prices will come down a little bit. That will help us a little bit as well.

HORSLEY: Gas prices have come down from the $3 range, reached just after Katrina, but even now the average price is some 40 cents a gallon higher than a year ago; 70 cents higher than in 2003. Another cabbie, Kassam Kalil(ph), echoes the sentiment of many fatalistic drivers.

Mr. KASSAM KALIL (Cabdriver): We depend on the gas to run the cars, you know, so was the idea. There's no other choice. We have to buy it.

HORSLEY: Americans have kept buying gasoline at a fairly steady pace, although demand has fallen for the biggest SUVs. And the US economy has also proven surprisingly resilient in the face of high energy prices. While prices are not likely to stay this high forever, they're no longer expected to fall as low as they once were. This year's prices have also fueled concern that the world may be close to running out of oil. Yergin, who's studied the long history of the industry, notes that predictions in the past have been premature.

Mr. YERGIN: This is the fifth time that we've run out of oil, and the last time we ran out of oil was in the 1970s, and since then, we've increased production by about 60 percent. It may get harder. The scale may get bigger. It may cost a lot more money, but that's probably what's going to happen once again.

HORSLEY: Yergin says over time innovation and new exploration will supply the energy we need. But most innovators and explorers are now betting on higher prices than they were a year ago. Scott Horsley, NPR News, San Diego.

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