boston.com Business your connection to The Boston Globe

If you think $3 is sky high, just try filling up in London

LONDON -- One hundred fifty dollars to fill 'er up.

That's what it cost Adam Mleasai, a 28-year-old builder, to fill his battered green Audi beneath the lit canopy of a BP station on Finchley Road, North London.

''It's so frustrating," he said, estimating that he now pays 80 pounds a week, about $150, to fill his gas tank. As British fuel prices edge toward one pound per liter, nearly $7 a gallon, those 80 pounds buy only about 83 liters, or 22 gallons.

''It is too expensive, but I need my car for work," Mleasai said last week. ''There is nothing else I can do."

Hurricane Katrina's devastation, which put a crimp in US oil production and refining, further tightened supplies that had been stretched by booming worldwide demand. Gasoline and diesel prices have reached record levels in many countries.

From London to Tokyo to Mexico City, motorists and lawmakers are asking the question: How high can the pump prices go?

The ramifications are widespread. In Thailand, the government has proposed closing filling stations earlier at night to reduce consumption. Shortages of state-subsidized fuel have caused long gas lines and piracy in China. In Germany, the two candidates for chancellor, Gerhard Schroeder and Angela Merkel, are bickering over who has the better formula for reducing oil dependency. In Mexico, it's a mixed bag: The government is sitting on a pile of crude-oil revenues, but the country lacks refining capacity, and industry is hurting because of the high cost of imported refined fuel.

In Germany and France, as well as in Britain, the cost of a gallon has climbed to almost $7. Because of high taxes meant to encourage energy efficiency, Europeans long have been accustomed to fuel prices that might make an American driver faint. But as prices increase, Western Europe's leaders are getting the first inkling of political fallout.

Truckers in France have blocked refineries in protest, and a similar action is threatened in Britain unless the government intervenes. The Treasury secretary, Gordon Brown, is expected to maintain a two-year freeze on fuel taxes, which otherwise would rise with inflation, though it will cost the British treasury $2.2 billion.

Brown has warned that the price of oil might drag down Europe's growth rate. ''Oil price rises after the recent events in New Orleans could affect Europe more than other countries. The European economy has shown itself to be fragile," he said at a meeting Friday of finance ministers in Manchester.

Some British stations are charging more than 1 pound per liter for diesel and premium grades of gasoline. Filling stations are changing their pumps and outdoor signs to accommodate three-digit prices per liter.

Even at today's levels, the betting here is that people will ''grit their teeth and bear it," said Rob Maynard, spokesman for the RAC, a motorists' services company that represents about 6.5 million British drivers. ''On the other hand, it may turn out to be that a pound a liter is some sort of psychological trip switch which does have the effect of making people realize what it has come to."

Katrina only added a sharp uptick to a yearlong trend of rising oil prices. Crude prices passed $60 a barrel this summer weeks before Katrina, then surged to $70.85 a barrel on Aug. 30 shortly after the hurricane hit. Prices pulled back after President Bush agreed to tap the US strategic oil reserve, and other countries in the International Energy Agency followed suit, agreeing to add an extra 60 million barrels to world supplies.

Japan released 7.3 million barrels. Pump prices in Japan are up a bit, but there were no shortages and little real alarm as prices hit $4.50 a gallon compared to $3.97 a year ago.

Elsewhere in Asia, price increases are sending shock waves. In Indonesia, a major oil producer that heavily subsidizes fuel, the higher prices could cost the government more than $13 billion in subsidies this year, a third of the federal budget.

President Susilo Bambang Yudhoyono is preparing to raise fuel prices for the second time this year, a highly unpopular decision. The crisis prompted the rupiah to plunge more than 10 percent, to its lowest level in four years.

Malaysia is taking a different tack. It raised the price of gasoline by almost 20 percent on July 31, to reduce government subsidies, but now the country is examining ways to soften the price increase, such as deferring an increase in highway tolls. In Thailand, the government is considering ordering the closure of service stations as early as 8 p.m., and increasing the use of ethanol.

With its vast population, China is second to the United States in oil consumption, and its booming economy has played a significant role in pushing up world prices.

But with domestic retail prices set at about $1.66 a gallon, some Chinese refiners have chosen to export for higher profits. That has created sporadic shortages inside the country.

For Mexico, the world's seventh-largest producer, rising prices are proving to be both a boon and bane.

Record export sales have created a windfall for the government, which depends on the state-owned oil monopoly Pemex to fund about one-third of federal spending. The nation currently is sitting on a pile of cash so large that the proposed 2006 budget boasts the first surplus in a decade. The government has socked enough money away to cover foreign debt payments until 2007.

But a shortage of refining capacity means that Mexico is a heavy importer of finished petroleum products. A Mexico City economist, Rogelio Ramirez de la O, said Mexico exported about $20 billion last year in crude oil, but imported around $15 billion in gasoline, petrochemicals, and other refined products, mostly from the United States.

So while Mexico's oil sector is riding high, ''the rest of the economy is suffering," Ramirez de la O said. ''Mexico no longer benefits in net terms."

Europe could suffer more than the United States because of the tepid economy of big nations such as France and Germany, said Jean-Philippe Cotis, the chief analyst for the Organization for Economic Cooperation and Development in Paris.

''Hurricane Katrina is a hard blow for the American economy, but it happened in a time of strong growth," Le Monde, the French newspaper, quoted Cotis as saying. ''Katrina and the recent rise of oil prices hit Europeans as they are just recovering and with a growth that is under standards."

SEARCH THE ARCHIVES
 
Today (free)
Yesterday (free)
Past 30 days
Last 12 months
 Advanced search / Historic Archives