Gas prices hiked by war worries
Business - Saturday, February 8, 2003 Fuel around town costs $1.59 a gallon www.coloradoan.com By Coloradoan staff and news services
NEW YORK -- The retail price of gasoline went up about 6 cents Thursday and Friday, fueled by high oil costs and fears of war with Iraq.
"Traders are afraid that the next barrel they buy will be more expensive than the one they bought today," said Tom Kloza, director of the Oil Price Information Service, a Lakewood, N.J., publisher of industry data.
That fear is contributing to the aggressive buying, he said.
The retail price of gasoline is up 8 percent since the start of the year.
At the pump, the average price of regular unleaded gasoline is $1.53 per gallon, up 11 cents since the year began and 43 cents higher than a year ago.
In Fort Collins, those prices average about $1.59 a gallon for regular unleaded, though a handful of stations are still selling gas for $1.50.9 and $1.51.9.
The price of crude has been above the magic mark of $30 a barrel since mid-December and closed Friday at $34.16 on the New York Mercantile Exchange.
The $30 benchmark goes back to the 1970s when prices crept above that and the country faced massive recession, said Sanjay Ramchander, associate professor of finance and real estate at Colorado State University.
"It's a threshold that spells disaster for the economy," Ramchander said.
"If you look at the long run, prices are about $16 to $17 a barrel. When you're talking $30, that's an 80 percent jump."
Analysts said the main drivers on wholesale markets earlier this week were the latest government supply data and the case made against Iraq by Secretary of State Colin Powell.
Prices rose sharply after weekly Energy Department statistics showed thinning U.S. inventories of gasoline and distillates, which include diesel and heating oil.
Later, prices retreated somewhat as traders determined Powell's presentation had done little to sway key members of the U.N. Security Council that immediate military action in Iraq was needed.
Representatives of China, Russia and France said the U.N. weapons inspectors' work should continue.
Ramchander predicted the price of crude oil would not fall until some of the uncertainty is resolved.
Though war appears imminent, the biggest uncertainty is what the future holds in Iraq, Ramchander said.
"A quick war will actually be better than a prolonged conflict," he said.
If war does break out, neighboring Kuwait could increase the supply, which would help, Ramchander said.
"It all depends on when war begins," he said. "If it begins in March, the question is how long will it be. And once the war is over, what's going to happen in Iraq."
Aside from the threat of war in Iraq, the lengthy political and economic crises in Venezuela also have propped up world oil prices for months.
Venezuelan exports of crude oil and refined products have increased in recent weeks, but not enough to calm U.S. energy markets, analysts said.
Nationwide supplies of gasoline have dwindled by 3.4 million barrels to 209.6 million barrels, or 5 percent below year-ago levels, according to the Energy Information Administration, the Energy Department's statistical arm. That slight shortfall does not fully explain why retail gasoline prices are 40 percent higher than last year, analysts said.
"We've got a market here being driven by psychological influences," said Peter Beutel of Cameron Hanover in New Canaan, Conn.
Analysts said some refiners have reduced output in recent weeks in preparation for the shift from winter- to summer-grade fuel. The annual switch to cleaner-burning gas before the busy driving season requires shutting down equipment, scrubbing it clean and starting all over again -- a process that causes supplies to contract and prices to move higher even under the best conditions.
This year, the impact of these so-called turnarounds is being magnified by the possibility of a U.S.-led invasion of Iraq, analysts said.
"We're probably going to start the summer driving season at higher levels than we have in a long time," said Phil Flynn, an analyst at Alaron Trading in Chicago. "There's a lot of bad news in those inventory reports."
The biggest wildcard is still the Iraq situation, Flynn said. "The general consensus is the sooner we get rid of Saddam Hussein, the sooner oil prices will come down."
Originally published Saturday, February 8, 2003