Price of Crude Oil Falls Again, but Analysts Warn It Will Remain at Lofty Levels

?HOUSTON — With the Memorial Day weekend and summer driving season coming soon, the sudden drop in oil prices could mean that drivers will find moderately lower gasoline prices at just the right moment.

But many energy analysts and economists predict that oil and gas prices will remain stubbornly high.

Supplies remain constrained by turmoil in the Middle East and North Africa, oil specialists said, and there is always the possibility that conflict could cut production in Nigeria. At the same time, expanding economies like China and India continue to drive the growth in oil consumption.

“Nothing has changed, except psychology and taking profits,” Allen Sinai, chief global economist of Decision Economics, a consulting firm, said of this week’s selloff in the oil futures market. “This is a correction, and not a shift in trend.”

Light sweet crude, the benchmark of New York trading, fell below $100 on Thursday for the first time since March, but it remains almost 30 percent higher than a year ago. At the close on Friday, oil for June delivery was down $2.62 at $97.18 a barrel.

Gasoline prices fell a fraction of a penny on Friday, according to AAA’s daily gas gauge. But with the average regular gallon costing $3.98, that is still 28 cents higher than a month ago and a $1.06 more than a year ago.

Other commodities were mixed after a sharp selloff on Thursday. Gold and cocoa were higher, while silver, wheat, cotton and copper were lower again on the day.

Tom Kloza, chief oil analyst of the Oil Price Information Service, predicted that the average price for a gallon of regular gasoline would fall to $3.75 by Memorial Day and to $3.50 later in the summer. Those are still historically high prices, taking consumers back to a level they were paying earlier this year.

President Obama, speaking to auto plant workers in Indiana on Friday, acknowledged the public frustration over high gas prices. “We’ve got high gas prices that have been eating away at your paychecks and that is a headwind that we’ve got to confront,” he said.

Meanwhile Attorney General Eric H. Holder directed a special task force to examine whether reductions in oil prices were being passed on to consumers. “Fraud or manipulation must not be allowed to prevent price decreases,” Mr. Holder said in a memo.

Corrections, even sharp ones, are not unusual as commodity prices follow longer trends up. A Barclays Capital research note on Friday observed that on several occasions last year, weak economic data pushed oil prices down to $70 a barrel. “Those periods were indeed short-lived,” Barclays noted, before oil prices continued their march upward.

While commodity traders move oil markets up and down from day to day, the fundamentals of supply and demand are the drivers from month to month and year to year. Though the fundamentals continue to point higher, oil prices are not expected, at least anytime soon, to return to the levels reached in 2008 when a barrel of crude neared $150 a barrel.

The Energy Department predicts moderately tightening world markets. The department last month estimated that world consumption would grow by an average of 1.5 million barrels a day in both 2011 and 2012. Despite more drilling in OPEC and non-OPEC countries, the department projected that supplies would increase to meet only roughly half the added demand this year and roughly 80 percent of the added demand in 2012.

International financial analysts and oil experts have been predicting a correction for some time in oil prices, since there are ample supplies at the moment. But many think oil prices are going higher in the second half of the year. ?

“Worldwide, the macro picture has not changed,” said Andy Lipow, a former Amoco trader who is president of his own Houston consulting firm. “Oil demand around the world continues to increase at the same time we are experiencing a supply disruption in Libya as well as a reduction of supplies from the Gulf of Mexico.”

He predicted that the price of oil would return to the $110 a barrel level by the end of the year. The Macquarie Group projected in a commodities research note this week that light sweet crude would average $110 a barrel this year, $115 in 2012 and $117 in 2013.

The military stalemate in Libya has taken over a million barrels a day of high-quality crude off the market, and oil fields and terminals have been damaged in the fighting. Meanwhile nearly half of Yemen’s 260,000 barrels of daily production is offline. That is a relatively small amount, but Yemeni crude is also a high-quality product that refiners find difficult to replace.

Saudi Arabia promised earlier in the year to increase its production capacity, but it actually cut production recently, claiming that the world markets were flush. Whether the kingdom steps up production remains to be seen, and energy experts are watching closely to see what if any decisions are made on OPEC production and prices at the organization’s next meeting in June.

Recent International Energy Agency and Energy Department reports predict that China, India, other developing nations and the Middle East itself will continue to consume more oil as they build factories and their middle classes add thousands of cars every week to the world fleet.

The Energy Department reported that crude inventories last week had risen by 3.4 million barrels, because American gasoline consumption has been slowing. Consumption may rebound somewhat as prices ease again, energy experts say.?Meanwhile, after the earthquake in Japan, demand for oil was down by about 30,000 barrels a day. That reduction was less than expected, and Japan will almost certainly import more oil as its economy recovers and it replaces some nuclear generation with heating oil.

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Memo From Havana: In a Changing Cuba, Many Remain Skeptical

 

HAVANA — For months, Cubans have been treated to an uncharacteristically blunt assessment of their future by none other than their president, Raúl Castro.

They do not work hard enough and live too much off the state dole, he has said. The economy has been based on an unworkable math in which two plus two “equals six or eight,” as he put it in a speech on Saturday. And the leadership has failed to groom a young generation to take over, leaving the upper echelon of the party dominated by standard-bearers of the revolution who are as old as 87.

No longer, he has promised, pushing forward a battery of changes, vastly expanding small businesses and, for the first time since the 1959 revolution, allowing Cubans to buy and sell private homes, something now done only through a bustling underground market.

But if winds of change — and it remains to be seen if they will end up being breezes or gusts — are emanating from the convention hall where the Communist Party held its sixth congress over the last three days, Cubans seem ambivalent, even skeptical, that the end result will upend the island.

“We have a way of making changes but keeping everything the same,” said Johan Rodríguez, 22, who supplements his meager state accountant salary by selling trinkets on the street. “The basic problem is we have no money. I am hoping what they are discussing will change that.”

Mr. Castro has steadfastly avoided using anything like the word capitalism in discussing the new economic platform, lest the United States get the impression a long-lost cousin was coming into the fold. Indeed, he has tended to avoid describing the changes as, well, changes, preferring to cast them as “modernizing” the Socialist model here.

Still, he has proved adept at diagnosing the precarious condition of the economy, warning that Cuba can no longer afford state workers who do little for their checks and even suggesting eventually doing away with the ration books that provide food and other necessities at heavily subsidized prices.

“How will we afford food?” said another young Cuban, a 36-year-old engineer who did not want his name used for fear his remarks would sound too critical to the government. “They will have to lower food prices a lot so people do not starve. This all seems so much so fast.”

Still, Mr. Castro has not been the radical reformer his speeches suggest he might be. He recently stepped back from announced plans to lay off 500,000 state workers, postponing the cuts indefinitely. Last year, he had cast the state’s “inflated work force” as an unsustainable expense, “tantamount to eating up our future and jeopardizing the very survival of the Revolution.”

But instead of the rapid economic overhaul previously laid out by the Communist leadership, Mr. Castro said much of the changes anticipated would come over the next five years.

And although he suggested top leaders like himself serve no more than two consecutive five-year terms, he also complained that the younger generation was ill prepared to take on top jobs.

How, analysts wondered, should that be interpreted as he officially ascends to the top spot in the party — Fidel Castro, 84, disclosed last month that he was no longer the party chief — and selects a new No. 2 at the party, the person who could succeed him as the nation’s president?

Rafael Hernández, a political scientist who edits the magazine Temas here, says there are legions of young party members in the bottom ranks who often hit a wall as they ascend.

“It is about a difficult political change between the generation that has been there for 50 years and the young generation,” he said. “It’s a difficult process and one that they have wanted to be done deliberately gradually so it would not be so traumatic.

“But,” he added, “I think it is not just about more young people. It’s about young people who think differently. We can have young people who think like the old ones or we can have young people who are young and think differently.”

Reading the tobacco leaves, as some call the Kremlinology here, can prove foolhardy since presumed rising stars streak and fizzle out. It is mostly a matter of matching relatively youthful ages with party rank and the frequency of television appearances, particularly near the Castros.

Much of the attention is on Marino Murillo, 50, who defended President Castro’s initiatives when he was the economy minister. Now he holds a new post as a kind of czar overseeing changes designed to push more people into private enterprise.