Experts expect fluctuations in gas prices will be modest

www.belleville.com Posted on Wed, Mar. 19, 2003
BY DAVID VAN DEN BERG AP

Metro-east drivers have no reason to panic about the impact of war with Iraq on gasoline prices, industry experts say.

"I don't think it's going to be a big deal," said Mike Right, a spokesman for the American Automobile Association in St. Louis. "I think there's other things going on in the oil markets that are going to be as big, if not bigger, a factor in determining what you and I pay at the pump than the Middle East action."

Those other factors, Right said, include the changeover from winter gasoline to summer gasoline -- a change Right said comes with a price penalty that hasn't shown up yet. In addition, Right mentioned low supplies, and an oil industry strike in Venezuela.

Along Illinois 159 between Belleville and Collinsville on Tuesday, prices ranged from $1.54 to $1.64 per gallon.

Muhammad Islam, an economics professor at St. Louis University, said the oil market is betting that the war will be short and that there will not be disruptions in the supply of oil, as evidenced by a drop in the price of crude oil. The price of crude, which reached a 12-year high of $37.83 last Wednesday, has fallen 16 percent over the past four trading sessions.

The price of oil plunged 9 percent Tuesday, falling to its lowest level in more than two months. The April futures contract fell $3.26 to $31.67 a barrel on the New York Mercantile Exchange, the lowest close since Jan. 8.

Jim Forsyth, the CEO of Belleville-based MotoMart, which has 67 gas stations in six states, said once the war starts, the price of oil will likely rise.

"If things look like they're going well, it'll come back down," he said.

Islam said if there is an increase in prices, it will probably be short-lived, because other sources of oil are available.

"The reasonable assumption would be that even if there is a short spike in oil prices, those prices will come down because somebody else will bring more oil to the market," Islam said.

European nations have their own stockpiles that could help make up for any supply shortages resulting from war. In addition, Islam said Saudi Arabia has said they have extra capacity and will pump oil to supply the U.S. market, and there is a possibility the United States could tap into its strategic petroleum reserves.

David Sykuta, the executive director of the Illinois Petroleum Council, said "there's going to be a holding of breath here when things step off." But, Sykuta thinks the United States is in better shape to weather any impact on gas prices than it was during the 1991 Gulf War, in part because the country depends less on oil from the Middle East now.

"We don't depend on them as much as Europe does," he said.

Some information for this story was provided by The Associated Press.