No quick win over oil prices
www.miami.com Posted on Sat, Mar. 01, 2003 BY KEN MORITSUGU kmoritsugu@krwashington.com
WASHINGTON - While uncertainty about a war against Iraq has contributed to a sudden spike in oil prices, those prices could remain high even if a U.S. invasion achieves quick victory.
And even if crude oil prices fall, gasoline prices likely would remain high at least into late spring, analysts say. It generally takes one to two months for oil price shifts to feed through to gasoline. Any postwar declines could be offset by upward pressure on pump prices as demand picks up with the start of summer.
The nationwide average price for unleaded regular is $1.67 a gallon, according to the American Automobile Association, 54 cents higher than a year ago.
Natural-gas prices also have risen, pushing up heating and electricity costs for many homes and businesses. High energy prices slow economic growth and increase the chances of recession.
''Unless it reverses itself quickly, the energy shock is big enough to threaten the economy,'' said Richard Berner, the chief domestic economist at the Morgan Stanley investment bank in New York. He put the chance of recession at one in four in a report to clients Friday. ''While it's anyone's guess how long it will last, the fundamentals don't suggest quick relief,'' he added.
Global Insight, an economic consulting firm in Lexington, Mass., doesn't expect gasoline prices to ease from today's level until July or August at the earliest.
Most analysts attribute part of the rise in oil prices to fears about potential war-related disruptions to oil production. The analysts conclude that a swift and successful war, with minimal damage to oil wells, would eliminate this ''war premium'' from the price.
Certainly, war rumors have created short-term havoc in oil markets, pushing the price of oil on the New York Mercantile Exchange up to $37.70 a barrel on Wednesday -- the highest since the Iraqi invasion of Kuwait in 1990 -- before dropping back to close at $36.60 on Friday. A barrel is 42 gallons.
''I call it March missile madness,'' said Phil Flynn, a futures trader at Alaron Trading in Chicago. He attributed the midweek run-up in oil prices to the market's getting ``a tad ahead of itself on war concerns.''
Yet some economists argue that oil prices would be high today with or without the so-called war premium. They note several other factors, such as low inventories of crude oil, high demand for heating oil because of the cold winter, and the disruption of production in Venezuela due to political unrest.
These factors alone are enough to account for much of the 45 percent rise in oil prices from $25 a barrel since November, said Dave Costello, an economist with the federal Energy Information Administration.