Oil Prices Approach $21 a Barrel, Fueling Inflation Fears

As if Wall Street didn’t have enough problems, oil prices are threatening to break and remain above $21 a barrel--the highest in nearly two years.

That can’t please anyone concerned that inflationary pressures in the economy could lead to another round of Federal Reserve interest rate hikes.

On Thursday, near-term crude oil futures in New York jumped 43 cents to $20.97 a barrel, after trading as high as $21.12. Prices haven’t seen these levels since November 1997.

Crude was led by gasoline futures prices, which also zoomed to the highest levels in almost two years amid surging demand for fuel from vacationing motorists--while gasoline inventories nationwide are at their lowest since December.

“People must be flocking to the beaches,� said Chester Irvin, a trader at ABN Amro in New York.

Gasoline futures rose 1.9 cents, or 3%, to 64.98 cents a gallon on the New York Mercantile Exchange. Prices have surged 17% in July.

Yet even pump prices at 21-month highs of about $1.19 a gallon nationwide--and significantly higher in California--haven’t kept Americans off the road.

An American Petroleum Institute report Tuesday indicated that gasoline had its second consecutive week of demand above 9 million barrels a day, close to the record of 9.6 million barrels set in March.

Gasoline prices also are being boosted by speculation that some refineries are having trouble producing fuel. Mobil Corp. said an explosion and fire early Wednesday shut a hydrogen plant at its Southland refinery, causing some units to operate below full capacity.

The company didn’t reveal how much the refinery was affected. Problems at California refineries earlier this year boosted local prices and attracted gas supplies from other parts of the country.

Oil prices began to rise from a low of about $11.50 a barrel in February after the Organization of Petroleum Exporting Countries, fed up with a global oil glut, bit the bullet and cut back on production.

Since prices have soared, energy traders have been watching for signs that OPEC would lift output again to raise needed revenue.

They may have a long wait. Government officials from OPEC-member countries have pledged to keep the cuts in place until next March.

Mexico, which is not an OPEC member, is participating in the cuts.