A 25-day long strike by Venezuela's oil industry workers and the threat of war with Iraq have pushed oil prices over $32 a barrel, the highest level in two years. The result could be steep increases in diesel prices in the months ahead.
The threat of high diesel fuel prices is acute because Venezuela -- the world's fifth largest oil producer -- is the fourth largest oil supplier to the United States, responsible for 14% of oil imports to the U.S. The industry went on strike Dec. 2 in an effort to force embattled Pres. Hugo Chavez to resign or hold new elections.
The situation has been compounded by the Organization of Petroleum Exporting Countries (OPEC) decision last month to cut exports by 1.7 million barrels of oil per day (b/d) starting Jan. 1, 2003. The threat of war in Iraq has also exacerbated the problem, according to experts, adding a $5 'war premium' to the price of oil in recent months due to fears about tight supplies should fighting break out in Iraq.
As a result of those factors, the price per barrel of oil has jumped 20% in a month and is up over 50% since last year. Oil prices have not been this high since November 2000, a date which marked the middle of the trucking industry's last diesel fuel price crisis. When oil prices jumped from $10 a barrel at the end of 1999 to over $30 by the end of 2000, diesel fuel prices jumped from then-record lows of $.90 a gallon to over $2.00 a gallon in some parts of the country. Similar price forces exist once again, warn experts.
Predictions for colder winter temperatures in the next few months could add to the problem, as diesel fuel is made from the same oil distillate as home heating oil. Some 10 million homes and 550,000 businesses rely on heating oil, according to the American Petroleum Institute, with most of them located in the Northeastern U.S. When demand spikes for heating oil, diesel fuel production is cut, making diesel fuel scarcer and thus more expensive, say experts.