One year ago, when coalition forces were rolling to victory in Iraq and optimism abounded, crude oil for delivery in May, 2004, was running at $25 a barrel. Today, the New York Mercantile Exchange price for oil delivered next month is over $36-a nearly 50% increase in the futures price for one of the industrial world's most essential commodities. Costly oil has helped drive up the U.S. retail price of regular gasoline to a record national average of $1.79 a gallon, a 20% hike so far this year. Now for the really bad news: While the price of oil could retreat in coming months, hopes for a quick return to $25 a barrel are increasingly remote. The main problem: Worldwide demand for oil is growing fast, led by China and the U.S. At the same time, the amount of spare production capacity worldwide is down to a little over 2 million barrels a day. That's just half the wiggle room that existed in late 2002, according to Energy Dept. data. So even though oil supplies seem adequate today and more projects are coming online soon, the markets are on edge. Traders have bid up prices out of concern that there won't be enough oil available if demand exceeds expectations. They're also pushing up prices because, in the volatile world of oil production, there's always a chance for a big interruption in supply.
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