Gas costs not likely to drop

www.zwire.com By: Scott Tynes March 11, 2003

There's no relief in sight for escalating gas prices, according to officials, and customers are beginning to question whether they will ever see low prices again.

"It's ridiculous," said Linda Clark of Brookhaven. "I don't think I've ever seen gas prices this high. "I travel a lot. It needs to come down so people can travel more." Gas prices in the Gulf Coast region, which includes Mississippi, Alabama, Louisiana, Texas, Missouri and New Mexico, are hovering around $1.59 this week, but officials don't expect it to last. Gasoline prices are up 1.3 cents in the region since last week and up 42.6 cents from March a year ago, according to the Energy Information Administration (EIA) of the Department of Energy. Other states, however, are looking to the Gulf Coast region with envy. Their prices this week are averaging $1.71 with similar statistics for a week and year ago as those of the Gulf Coast region. Prices in the Gulf Coast region are typically cheaper than most of the U.S. because nearly half of the gasoline production in the states is done here. The latest gasoline crunch is fueled by production cuts in previous years. "The most recent gasoline price increases are due in part to OPEC crude oil production cuts in 1999," according to EIA. "In addition, higher demand from a recovering Asian economy caused more competitive bidding for crude oil supplies in the international market." This created low inventories in the world market. As the market was beginning to recover from that blow, Venezuelan workers went on strike, stopping crude oil production and exports from that key OPEC country. Strike leaders lifted the general stoppage in non-oil industries Feb. 3, but there has been no resolution of the strike in Venezuela's oil sector, now in its fourth month. "Even when crude oil prices are stable, gasoline prices normally fluctuate due to factors such as seasonality and local retail station competition," according to EIA. "Additionally, gasoline prices can change rapidly due to crude oil supply disruptions stemming from world events or domestic problems, such as refinery or pipeline outages." The loss of Venezuelan oil was partially offset by increased production from other OPEC members, who were able to match nearly 60 percent of the lost production. However, the world oil inventories were already low from the 1999 production cuts and can not rebound until full production is regained. Low inventories are driving higher gas prices in a basic struggle of supply and demand. The Venezuelan strike and other factors in the world political climate have had a very severe impact on oil prices, especially with the possibility of a war in Iraq looming. "February crude oil prices moved higher than expected pushed by fears of a war in Iraq, low inventories, slow recovery in Venezuelan exports, continued cold weather and sharply higher natural gas prices in the U.S.," according to EIA. The threat of war involving OPEC members traditionally has a negative effect on gasoline prices. "Events in crude oil markets were a major factor in all but one of the five run-ups in gasoline prices between 1992 and 1997," according to the National Petroleum Council (NPC). In 1973, gas prices climbed because of an Arab oil embargo. Events involving Iran caused the increases in 1978 and 1980, first the Iranian revolution and then when they went to war with Iraq. The Persian Gulf conflict caused the increase of 1990. Most of the Middle Eastern countries are members of OPEC, including Iran, Iraq, Kuwait, Saudi Arabia, United Arab Emirates and Qatar. Other members include Venezuela, Algeria, Nigeria, Libya and Indonesia. Middle Eastern members make up more than half of OPEC's production and the threat of a war in the region tends to force prices up, according to the EIA. "OPEC has the potential to influence oil prices worldwide because its members possess such a great portion of the world's oil supply, accounting for nearly 40 percent of the world's production of crude oil and holding about 67 percent of world's estimated crude oil reserves," according to the EIA. Because of all these factors, gasoline prices are not expected to decrease until the Venezuelan strike ends and oil exports resume there at their normal levels, and the threat of war is removed from the Middle Eastern region. Clark said she doesn't expect to ever see low gasoline prices again. She believes that after summer, when gasoline prices are traditionally higher as more people travel, prices will not decline as they usually do with the onset of fall. People will be used to paying high prices, she said, so the oil companies will keep prices high.