Consumers, market brace for price of war

www.starnewspapers.com Thursday, March 20, 2003 By Jim Pecora

Fuel prices that have been climbing for months eased and even fell slightly as the first U.S. strikes against Iraq were launched.

In a survey taken this morning for AAA Chicago, the average price for a gallon of unleaded regular gasoline in Illinois was about $1.72, down 0.5 cent from Wednesday. The diesel average was about $1.84, also down a half-cent.

The Chicago area average price Thursday morning was about $1.78 for unleaded regular, down 0.4 cent from Wednesday.

Diesel in the metropolitan area was averaging about $1.89, down 0.5 cent from the previous day and 3.6 cents below the area's diesel record, which was set March 12.

AAA Chicago reported March 12 that the price of a gallon of unleaded regular gas had reached almost $1.84 in the Cook County area, up 13.8 cents from February.

The average Will County price was about $1.63 a gallon, one penny higher than the average price in northern Indiana.

But that price climb lasted only a few more days, and began to decline Wednesday.

The decline followed a plunge in crude oil prices on international markets.

Experts said traders appeared convinced the United States was going into a short and successful war with Iraq. The slide came within weeks of crude oil prices approaching record levels.

AAA Chicago spokesman Steve Nolan said today that the slight decline in prices at the pump is because "crude oil prices dropped significantly."

"I think a lot of this is due to the industry's response to what's happening in Iraq and in anticipation that it will be a short war.

Also, there is the idea that the United States will release some oil from its strategic oil reserves.

"If it's a long war, then all bets are off as to where (the prices) are going," he said.

The conflict is beginning at a time when gasoline prices traditionally rise, as refiners convert to production of reformulated gasoline for the summer driving season.

At the same time, diesel fuel prices, which had been setting daily records, also began falling, with the today's average price in Illinois at about $1.85, down a half-cent from the previous day and 2.7 cents down from the record set March 14.

"It's killing us," Don Skafgaard, operations manager at Leoni Motor Express, said of diesel fuel prices. "It's not just companies like us; it's doing it to everybody, all the trucking companies."

He said the Chicago Heights trucking firm, which runs about 50 trucks in a 250-mile radius around Chicago, was spending about $900 more per month to run each of the trucks.

"I do run (some) owner/operators, and it's taking food right off their tables," Skafgaard said. "These guys who run for me, they work really, really hard, and the fuel's killing them."

Nolan said the situation will worsen if the war drags into the spring because of the annual shift to reformulated gasoline.

"If there's no quick resolution, and we switch over to reformulated gasoline, the prices could be even higher," Nolan said.

The record high average price for a gallon of self-serve unleaded regular in Illinois is $2.01. It was set June 20, 2000.

The average prices for a gallon of self-serve unleaded regular was $1.20 in August 1990, when Iraq invaded Kuwait. The price leaped to an average of $1.34 a gallon in September, $1.44 in October, $1.50 in November and $1.51 in December before beginning to decline.

The price began falling back in January 1991, when the United States and its allies began launching attacks against Iraqi targets in Kuwait and Iraq itself. The ground attack began Feb. 24 and the war effectively ended within days.

The average gasoline price was down to $1.39 in January 1991, $1.31 in February and back at $1.20 in March.

Bill Fleischli, executive vice president of the Illinois Petroleum Marketing Association, cited three reasons for the escalating fuel prices going into the war.

"There are three reasons," he said, "the war situation; cold weather in the southeastern part of the country, so more crude oil goes to heating oil than gasoline, and third, Venezuela, the fifth-leading oil producer, had been hit with that strike or uprising in mid-December.

"At the same time, crude oil stockpiles were at the lowest level since 1975. There are shortages there now. Crude oil prices have been going up, and gasoline has been going up."

An unusually severe winter with major snowstorms has been pounding the eastern United States, boosting demand for home heating oil.

The record price for a barrel of crude oil hit $41.15 a barrel in October 1990, after Iraqi forces swept through Kuwait.

Fleischli noted that the recent surge in prices came even as Saudi Arabia was increasing production "to try to help for the Venezuelan situation." He said there also had been a strike in Nigeria, the ninth-leading producer.

Also in February, fire erupted at the huge BP refinery just across the border in Indiana. The BP facility is the third-largest oil refinery in the United States, Fleischli said, and it provides a lot of fuel for the Midwest, which was experiencing among the highest gasoline and diesel fuel prices in the country before the war started.