Many factors boost fuel prices

Politics, production limits and high taxes are driving costs upward

Munich. The A7 Autobahn, Lonetal service stop, vacation time. The father of a Dutch family is busy filling the fuel tank of his pickup from a can full of diesel from his home country.

That's small wonder, since the tourist would have had to pay 1.13 euros per liter, or about $1.39 at current exchange rates, at the pump in Germany.

In the Netherlands, diesel fuel costs about six Euro cents less a liter. At the family's destination in Austria, the price is just 99 Euro cents.

In general, fuel prices in Europe have reached extremely high levels. In January, a barrel of oil still cost $40, but climbed to $66 by August. But the price jump isn't due to shrinking output. "There is currently more oil being supplied than is being consumed," a spokeswoman for the German oil industry association MWV said.

Oil speculators

Willi Diez, director of the Institute for the Automotive Economics at the Nuertigen University of Applied Sciences, primarily sees "political instability in the oil-producing regions of the Middle East" as the driver for higher prices.

Michael Heise, an Allianz economist, agrees: "Currently, drivers are paying a high insecurity premium at the pump," he said. According to Heise, prices now bear no relationship to the current market situation.

ExxonMobil Corp. says speculators are responsible.

"The total number of paper barrels has drastically increased," a spokeswoman said. Paper barrels refer to the amount of oil that is shifted from one buyer to another without moving an actual barrel a millimeter. The sales take place in the shortest possible time and only on paper.

"Ten years ago, it was considered chic to deal in wheat. Today it's oil," she said.

Catastrophes such as the London bombings have a severe, direct effect on those types of deals.

Allianz's Heise is also convinced that "the high crude oil prices won't fall back to the levels that prevailed at the start of the year" in the foreseeable future. The uncertainty over the political developments in Iraq and Iran are too great, he says.

But experts don't see the shaky governments in the Middle Eastern oil states as the sole culprit.

The economic outlook is flagging in Japan and Europe, as is the demand for fuel. But demand in China and the United States is sharply up. After several years of losses, refineries are again operating at capacity.

The result is that the fuel that American refineries produced for Europe is now needed in the United States. That affects prices on the Rotterdam gasoline exchange.

That is how the foundation was laid for driver frustration at the pump. Plus about a 40-percent tax rate in Germany for gasoline and diesel.

Oil companies make it known that the net price for oil is lower in Germany than in any other of the 25 EU countries.

But that doesn't help drivers, who are considered creatures of habit.

"The old patterns of behavior come back again," Diez said. Currently, gasoline stations are buying much less gasoline, especially the expensive Super Plus.

According to the MWV trade group, 13.9 million tons of gasoline were sold in the first six months of 2005, 5 percent less than in the same period a year ago.

Registrations for vehicles with engines bigger than 2.0 liters slipped nearly 13 percent in the first six months of this year.

Diez attributes this to cost-cutting on the family car that is driven by the wife. He is supported by a survey of buyers intending to buy a car yet this year. It found that most women settle for a car with a maximum of 100 horsepower.

Automakers take little pleasure in that. According to Diez, there is still truth in the phrase, "big cars, big profit, small cars, small profit."

Models with up to 200 horsepower are high on shopping lists, especially among men.

But not hybrids. Most West European drivers prefer diesels as a proven method to fight high gasoline prices.

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