Tuscaloosa gas prices reflect national trend

www.cw.ua.edu By Heather Henderson Senior staff reporter March 12, 2003

In self-serve gas stations across Tuscaloosa, signs advertising prices of $1.59 and up for regular unleaded gasoline demonstrate a nationwide trend.

According to a Lundberg Survey, the past two weeks have seen gasoline prices throughout the country rise an average five cents per gallon, with some areas, such as Los Angeles and San Francisco Bay exceeding $2 per gallon.

At the Pit Stop gas station on University Boulevard, regular unleaded gasoline prices rose from $1.54 at the beginning of March to $1.59 last week.

Factors contributing to the price inflation include a continuing workers' strike in Venezuela combined with talks of war with Iraq, said Dr. Peter Clark, associate professor of chemical engineering.

The Office of Petroleum Exporting Countries March quota for Venezuela is at almost 3 million barrels per day, the third largest OPEC quota.

"If the oil market in Venezuela would go back to normal, we'd be in good shape anyway," Clark said. "Until Venezuela started having their problems, we only got a small percentage of our oil from the Middle East."

However, the United States and Europe now rely heavily on Middle Eastern oil fields.

According to OPEC statistics, Saudi Arabia exports almost 8 million barrels per day, Iran is second with about 3.5 million barrels per day and Kuwait exports nearly 2 million barrels per day. Iraq, due to sanctions, produces about 2.3 million barrels per day, according to a CNN report.

The current rise in gasoline and oil prices, in all markets and levels of trading, has been influenced not only by a change in supply and demand, but also by fears of war, Clark said.

"Prices will rise during periods of uncertainty," Clark said.

No single person or company sets the price of oil. Instead, prices are controlled by supply and demand and to some degree by the oil futures price set by auction in trading markets like the New York Mercantile Exchange, he said.

If the majority of suppliers and buyers feel there may soon be an oil shortage, suppliers will ask for more and buyers will pay more for the product. As a result, when the president started talking about war with the Middle East, prices rose even more, Clark said.

If war becomes a reality, Clark said gasoline prices will depend on how much collateral damage Saddam manages to cause.

"If nothing goes wrong, and we manage to pull off the war without damages. The price of gas should drift down a little bit," Clark said.

Clark stressed the importance of protecting not only the oil fields in Iraq, but also in Saudi Arabia and Kuwait.

"If there is damage to the oil fields in Iraq ... there will be a little damage to the market, but not huge," Clark said. "If Saudi Arabia and Kuwait oil fields are damaged, we'll have a serious problem."

Clark also acknowledged the possibility that countries opposed to war could use their oil supplies as an international bargaining chip, but said the move might prove to be a disadvantage to them.

"While cutting off the U.S. oil supply by might seem like a good way to oppose U.S. policy, the problem that the countries could have in using this as a weapon is that their economy is so tied to the oil revenue that they would hurt themselves as much or more than they hurt us," Clark said.

Next week, OPEC ministers will meet to discuss raising output quotas to meet potential supply problems if war erupts.

"The thing that worries me, there's only a couple of ways this [the war] can go right and many ways this can go wrong," Clark said. "All the wrong ways will end up costing us a lot of money."